Should We Expect a Property Price Crash?

The London property bubble is insane – there is no other word for it. As the Guardian reported recently, “some boroughs [have] witnessed [a] 30% price growth over the last 12 months, [taking] the average home price to within a whisker of half a million quid”. In fact, some London properties are almost priceless, with London recently overtaking Hong Kong as the most expensive city in the world to relocate employees to. And when there is a bubble, people expect it to burst. But with so many eager buyers waiting on the side-lines, experts expect a slow steady decline of the annual growth rate, rather than a property crash.

“The regional figures for London indicate that the number of new sellers already hugely outnumbers new buyers”, reports the Daily Mail, and basic economics dictates that when supply is high and demand is low, your prices will fall. However, when you consider the number of interested buyers compared to the number of properties on the market, especially in sought-after London boroughs, it becomes clear that potential demand in London is still astronomical. Coupled with this is an expectation of higher interest rates before Easter with Mark Carney, the governor of the Bank of England, signalling the start of a gradual rise by spring. When people expect interest rates to rise, phrases like, “now is a good time to buy” start making their way into casual conversations and people start loosening the hold on their purse strings. For potential sellers who have been holding onto to their property while prices still rise, the rumour of a property crash will quickly make them more inclined to sell properties for lower offers – this will serve to stabilise the prices rather than prompt prices to plummet altogether.

The availability of mortgages, of course, also affects the property prices; where banks tighten their belts on loans, supply is seen to outstrip real demand and prices fall. “The Bank of England is quietly confident that the Mortgage Market Review (imposed by regulators to avoid a repeat of lax lending), plus caps on lending, will take the froth off the London market without throwing the rest of the UK into the doldrums,” reports the Guardian.

Despite the Bank of England restricting the amount of lending banks could do at high multiples of a potential homeowner’s salary, the Daily Mail reports that this is unlikely to restrict lending significantly unless prices keep soaring and salaries don’t keep pace. With the availability of government and building society schemes to help first-time buyers and the huge amount of international interest and investment in London, it’s unlikely that tighter control on mortgages will cause the price to crash altogether. While property owners may mourn the loss of lucrative annual equity on their property, a stable property market is far more predicable than a bubble with accompanying rumours of an imminent crash. With the London property market unlikely to see a crash, sellers and buyers should welcome a more stable and predictable housing market in coming months.

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