Housing bubble forming in London, warns Ernst and Young

 
Egerton Crescent in borough of Kensington and Chelsea - average prices are £5m here Overseas buyers form a high percentage of buyers of the most expensive properties in London

The London housing market is exhibiting "bubble-like" conditions, economic forecaster Ernst and Young has warned.

It says the average price in the capital is expected to reach around £600,000 by 2018, 3.3 times the price in the north-east of England.

Asset-price bubbles occur after swift price rises set values at unsustainable levels, which then collapse.

Meanwhile, the independent think tank Civitas says curbs should be placed on overseas buyers of London property.

Civitas says these are needed to rein in "rampant" house price inflation.

Recent official figures from the Office for National Statistics showed average property prices rising strongly across the country.

BBC housing calculator

Renting example
  • Let's you see where you can afford to live - and if it would it be cheaper to rent or buy
  • Enter how many bedrooms, which end of the market and how much you want to pay each month
  • As you move the payment slider, parts of the UK light up to show you where you can afford
  • Based on pricing and rental data from residential property analysts Hometrack

Prices were 5.4% higher across the UK in November, compared with a year earlier, but were increasing by more than twice that - 11.6% - in London.

Curbs

Civitas's report says the UK property market is being used as an investment vehicle by the global super-rich while hundreds of thousands of younger residents are being priced out of the market and rents are eating into more and more of people's salaries.

The think tank says that non-residents of the UK should only be allowed to purchase a property in London if that investment will add to the number of homes, under a system similar to that in force in Australia.

There, non-residents are not allowed to buy an existing home but may be allowed to buy an unoccupied new dwelling, so long as they can satisfy the authorities that the housing stock has increased.

Other countries that restrict foreign buyers' access include Switzerland and Singapore.

Concern

Stuart Law from Assetz property investment questions whether there is a housing bubble

Civitas said: "London is one of the most - if not the most - attractive property markets for international investors all over the world. It is also at the centre of an affordability crisis in the UK which is having serious consequences for younger people and the less well-off,."

Civitas said that, as well as driving up prices, there are claims that investment at the top end of the market has been distracting developers from the need for more affordable accommodation: "For too many it is providing financial shelter rather than human shelter."

EY is also concerned about conditions in the London property market, where overseas buyers looking for safe-haven investments dominate the prime property market, particularly in central London.

It says the Bank of England may need to think about linking mortgage size to income levels formally.

Andrew Goodwin, senior economic adviser to the EY ITEM Club, said: "House prices across most of the country remain well below their pre-crisis peaks and there seems little danger of a bubble developing.

"But London, which is suffering from a combination of strong demand and a lack of supply, is increasingly giving us cause for concern."

The interactive content on this page requires JavaScript

UK house prices

Year on year % change

Reset
 

More on This Story

The BBC is not responsible for the content of external Internet sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    -2

    Comment number 588.

    "Bubble" is term used when something Inflates Artificially

    In London
    Supply is low (No more land to Build)
    Demand is High (New Employers, More Employees, Immigration from EU, Direct investment by foreigners)

    How on earth will you call it as bubble?Come to the reality, the house price raise in London is NATURAL and it will continue in this trend unless Demand reduces or Supply increases

  • rate this
    +8

    Comment number 585.

    It is wrong that some individuals, using buy-to-let can continuously borrow to the point of "owning" large numbers of houses - with tenants paying the mortgages. Why not, Ist home 5% deposit, second home 40%deposit, third home 60% deposit, fourth and subsequent homes - 100% deposit!

  • rate this
    +4

    Comment number 576.

    The thing about London is, it's very much out there on its own in terms of nearly everything. The financial crisis hasn't really affected it at all. The huge investment in London makes it wealthy at the expense of other cities. Ultimately, however, London will recover and prosper, but everywhere else will suffer as a result. This is extremely damaging for the UK.

  • rate this
    -37

    Comment number 239.

    Market forces will sort out any housing bubble so what is the problem?
    London has always been expensive to live in but most people get paid a lot more too.
    The higher prices of everything could well be a good thing as some businesses will eventually relocate and spread work to cheaper regions. That has to be the perfect scenario.

  • rate this
    -49

    Comment number 200.

    House prices in London, Reflects the high status of UK and overseas buyers in our Great Global City.

    It is the seller that set the price - not any body else -

 

Comments 5 of 11

 

More Business stories

RSS

BBC Business Live

  1.  
    08:30: Vinyl record
    Vinyl

    More than one million vinyl records have been sold in the UK so far this year - the first time the milestone has been achieved since 1996, reports the BBC's Dave Lee. The Official Chart Company says it will soon launch a weekly vinyl chart.

     
  2.  
    08:22: Markets update

    Here's how the main European markets are looking in early trading:

    • In London, the FTSE 100 is down 0.1% at 6,721
    • In Frankfurt, the Dax is up 0.25% at 9,940
    • In Paris, the Cac is down 0.2% at 4,373
     
  3.  
    Via Twitter Adam Parsons Business Correspondent

    tweets: "Poundland shares up 3%. Company now valued at £800m."

     
  4.  
    08:12: East Coast sale BBC Radio 4

    "This was the best of the three bids," Transport Secretary Patrick McLoughlin tells the Today programme. He adds the Stagecoach/Virgin consortium known as ICR, is offering an increase in the premium that will be paid to the government. Asked if the consortium will paying more than the other bidders he replies "Oh yes". But he says services will also be improved - 23 more rail services will operate from Kings Cross. "We have seen a magnificent transformation on the railways in this country since privatisation."

     
  5.  
    08:05: Stagecoach shares

    Shares in Stagecoach are up more than 8% following the announcement that it won the East Coast rail franchise. Meanwhile, rivals FirstGroup are down 5.6%.

     
  6.  
    07:50: Poundland profits

    Discount retailer Poundland has reported a near 12% rise in pre-tax profits for the six months to the end of September - to £9.3m. The retail chain, which debuted on the London Stock Exchange in March, said its target was to open 60 new stores in the UK and Ireland next year. It added it was on track to open 10 stores in Spain by the end of 2016, with three already open.

     
  7.  
    07:46: East Coast sale
    Mick Cash

    The RMT trade union has come out all guns blazing. "It is a national disgrace and an act of utter betrayal that the government has confirmed that it is bulldozing ahead with the re-privatisation of the East Coast Main Line despite all the figures showing that the current public sector operator is handing over a billion pounds back to the British people while delivering huge improvements in service and customer satisfaction," says general secretary Mick Cash.

     
  8.  
    07:28: Mulberry finally bags new creative director
    A woman walks past a video display in the shop window of a Mulberry store in central London

    Luxury handbag maker Mulberry has finally completed its search for a new creative director. It comes 18 months after Emma Hill, the woman who helped make Mulberry a household name, departed following a row with the firm's then chief executive Bruno Guillon over "creative differences". Mr Guillon left in March after Mulberry issued three profit warnings. The new creative director is Johnny Coca, currently head of design direction at Céline. He joins Mulberry in July 2015.

     
  9.  
    07:24: East Coast sale

    ICR, as the consortium is being dubbed, is not an even partnership between Stagecoach and Virgin. The former holds 90% of the capital.

     
  10.  
    07:16: East Coast sale

    Inter City Railways says: "The company will shortly begin talks with Network Rail and the Office of Rail Regulation to agree its plans to run new direct services from London to Sunderland, Middlesbrough and Huddersfield".

     
  11.  
    07:12: East Coast sale

    "Over the next eight years Inter City Railways will pay the government around £3.3bn to operate the franchise."

     
  12.  
    07:10: East Coast sale

    Inter City Railways, as the Stagecoach/Virgin consortium is named, says the deal will bring 23 new services from London to key destinations, and 3,100 extra seats for the morning peak times by 2020.

     
  13.  
    07:00: East Coast sale

    A consortium made up of Stagecoach and Virgin has won the franchise to run the East Coast main line.

    East Coast
     
  14.  
    06:54: Rémy Cointreau
    Rémy Cointreau

    Cognac maker Rémy Cointreau reports a 15% drop in operating half-year profit, to €102m. The French group says it "remained adversely affected by evolving consumption patterns in China," by which it means that officials are having fewer Cognac-fuelled soirées.

     
  15.  
    06:50: Falling oil prices BBC Radio 4

    Speaking of balancing budgets, a number of analysts think Opec won't be able to reach an agreement on cutting oil production (which is needed to stop the supply surplus that is driving the oil price down) precisely because of a number of members have already done so - Iran has cut production by 1 million barrels a day as a result of international sanctions. Moreover, some members, such as Venezuela and Nigeria, simply can't afford to do so.

     
  16.  
    06:40: Tibetan tapestry
    Silk

    The latest entry in our Live Page series of artwork sold for exorbitant amounts is this 600-year-old Tibetan silk tapestry. It fetched $45m at an auction in Hong Kong - a record for art from the region. The good news is that the buyer will put the colourful thangka - which depicts the meditational deity Raktayamari, and was created during the Ming dynasty between 1402 and 1424 - on public display at a museum in Shanghai.

     
  17.  
    06:24: Falling oil prices
    Opec

    Here's an image that the delegates at Opec will be familiar with. It outlines the price per barrel of Brent crude oil that some states need to see in order to balance their budgets.

     
  18.  
    06:24: Falling oil price BBC Radio 4

    The main item on the agenda at the Opec meeting is the falling oil price, and what to do about it. BBC economics correspondent Andrew Walker says lower demand has pushed the price down, caused by a slowdown in industrial production in the eurozone and China. But US oil production - thanks to fracking - is also at its highest since 1986 and that is putting pressure on the price of Brent crude as well.

     
  19.  
    06:20: What is Opec?
    Opec

    The Organization of the Petroleum Exporting Countries (Opec) is holding talks in Vienna later today, on how to address the 30% fall in crude oil prices since June. Our colleagues have put together a 60-second explainer that will tell you what the meeting is all about.

     
  20.  
    06:10: Thomas Cook Radio 5 live

    Anne Richards, chief investment officer at Aberdeen Asset Management, tells Wake Up to Money that Harriet Green's shock departure from Thomas Cook yesterday doesn't feel "pre-ordained", and as a large shareholder, her company will be asking for an explanation. Thomas Cook's share price slumped 17% following the news.

     
  21.  
    06:02: Matthew West Business Reporter

    Morning. We should also be getting details of who the East Coast Mainline is being sold to this morning too. According to the Mirror newspaper, the government has decided upon a French consortium which includes Kelios - ultimately owned by French state rail operator SNCF. Will bring you that announcement when it happens. As always get in touch via email at bizlivepage@bbc.co.uk or on Twitter @bbcbusiness.

     
  22.  
    06:00: Joe Miller Business Reporter

    Good morning. A cross-party report is understood to have recommended giving the Scottish Parliament new powers to set income tax and control some welfare payments. The report was commissioned after David Cameron, Ed Miliband and Nick Clegg promised shortly before the independence referendum that Holyrood would be given new powers, if people voted to stay in the UK. Stay tuned for more details.

     

Features

  • Afghan interpetersBlacklisted

    The Afghan interpreters left by the US to the mercy of the Taliban


  • Prosperi in the 1994 MdSLost in the desert

    How I drank urine and bat blood to survive in the Sahara


  • photo of patient zero, two year-old Emile OuamounoPatient zero

    Tracking first Ebola victim and and how virus spread


  • Iranian Foreign Minister Mohammed Javad Zarif (left) and chief nuclear negotiator Abbas Araqchi wave to journalists from the Palais Coburg in Vienna (22 November 2014)Waiting game

    Journalists watch as nuclear talks go to the wire


From BBC Capital

Programmes

  • The challenge is to drop a bottle of water within 100 metres of this dummyClick Watch

    The race to get water – transported by drone – to a man stuck in remote Australia

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.