Outside of London, the 'property crunch' is non-existent

Record unemployment. Surging pay. Ultra-low interest rates. It sounds like the perfect time to buy a house. Prices should be booming. Yet prices in the three months to September were up just 0.2% on the year, according to Nationwide. So what's going on?

Article sourced from The Telegraph


The trick is to look beyond the headline numbers. Britain's housing market is often spoken of as if it is one beast, but is it not a unified entity at all. Instead it is very much a local market. Buyers know roughly where they want to live, tweak it depending on variations in local prices, schools, jobs, family concerns and more. The price in London is of no interest to a buyer in, say, Leeds. The cost of a flat in Burnley does not matter to a mover in Brighton.


Prices are rising in most regions, at what one might consider to be a sensible and moderate pace.


The UK does not have one unified housing market - London is prone to more extremes


Northern Ireland recorded a 3.4% rise. Wales' prices are up 2.9%. The north west of England is next at 2.5%, and the West Midlands at 2.1%. The trend since mid-2017 has been the same: Northern Ireland up almost 8%, the north west nearly 7%, and the West Midlands 6.3%.


Yet the UK's prices overall are up by only 2.4%. That is because London's prices have been falling for the entire period, a slow but percentible drain from the average as the biggest property market weighs down the headline number.


Prices in the capital fell 1.7% over the past year, and have dropped for the past nine consecutive quarters, an overall fall of 2.4%. This gives a very clear split between London and its surrounds, and the rest.


The gap between prices in London and the south east, and the rest of the country is easing - a little


The gap in the average price in London and the south east compared to the rest of the country is down from its peak of just over £166,000 at the start of 2017 to just below £152,000 now. That is still high by historic standards - the premium was only £76,500 at the start of the financial crisis - but it shows London is playing by different rules to the rest of the nation.


Once this meant prices booming far in excess of those elsewhere. Now it means the air is escaping that bubble.


Structural differences between regions are important, says Robert Gardner, chief economist at Nationwide. London has an unusually large private rented sector, so changes in buy-to-let borrowing rules and taxes had a bigger impact on demand and on prices. Its working population recovered more quickly and surged after the crisis, pushing up prices as house-building failed to keep place.


The result is strained affordability in the capital, as first-time buyers have to scrape together bigger deposits to buy in London, and mortgage payments are higher than elsewhere. It left London's prices much more vulnerable to a slow down. Prices elsewhere can keep rising easily. London's sellers will struggle to find many buyers with deeper pockets who can sustain higher costs.


This can also be seen in UBS's global real estate bubble index, which monitors prices in hot spots around the world. London has slipped out of bubble territory and is now merely classed as "overvalued".


"Increased stamp duties and a less favourable tax environment have taken their toll on the sentiment of wealthy investors, " said the bank's report. "Political uncertainty about Brexit has made investors cautious. But we consider further downside limited unless the UK plunges into a severe recession".


That suggests that, after a pause, London's market might eventually reconnect with the economic fundamentals, rising in line with earnings once more - and re-joining the rest of the nation's housing market.


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