Financial News

  • 4 February 2014, 7:22

London 'Property Bubble To Last Until 2018'

London's housing market has started to show worrying "bubble-like conditions", according to an economic forecast.

EY Item, formerly known as Ernst and Young, said that by 2018 the average house price in London will be almost 600,000.

While it said the vast majority of Britain does not display signs of overheating, London does because of limited supply and strong demand.

Price-to-income ratios have been driven towards previous highs, signalling the bubble conditions.

EY expects UK house prices to rise by 6.5% annually over the next five years.

In compound terms it means home will be worth 37% more in 2018.

The report said: "However, this national figure masks stark regional differences, with London and the other southern regions pulling away due to combination of stronger employment and income growth and a more limited expansion of supply.

"By 2018 the average price in London will be over three times that in Northern Ireland and the North East."

It said changing the Government's Help To Buy scheme would be counterproductive and instead recommends a limit to loans based on capping multiples of income.

Meanwhile, separate research from think tank Civitas says restrictions should be placed on overseas buyers of London homes.

It said this would help ease what it calls "rampant house price inflation" and the problem of younger people being priced out of the market.

According to Nationwide, UK house prices climbed by an annual rate of 8.8% in January, extending the fastest pace of increase since 2010.

The British Bankers' Association recently said mortgage approvals hit 46,000 in December and the figure was the highest number for six years.

Last week, the Government said nearly 13,000 Help To Buy scheme new build loans occurred since its launch nine months ago.

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