Is the London property market about to run out of steam?

The headlines in the UK property market today are focused upon London property prices which increased by 4.2% during the month of April. This is the largest monthly increase since records began at the Land Registry in 1995. Unlike other property price indexes, the Land Registry figures are based upon completed property transactions as opposed to “agreed transactions”. The rise of 4.2% in April adds to the annual rise of 17% which is the highest since 2003.

There are many different ways to consider this data, with optimists suggesting the market is growing in strength and pessimists believing this the final swish of the tail before the market dies. Should we really take any notice of this increased strength in London property prices? Or is this just another month in the world of London real estate?

Property price bubble fears

When you bear in mind that the value of the average London property increased by nearly £18,000 during April alone, not too far away from the average UK wage, this perfectly illustrates the growing strength of London property. If we look at England and Wales in general terms house price increased by 6.7% to the year ended April 2014 and indeed this was the fastest growth rate since June 2010. Even though the rest of the UK market is well behind the London real estate sector it does seem as though the UK property sector in general is still fairly strong.

Quote from PropertyForum.com : “Mark Carney, the Governor of the Bank of England, has today finally admitted that the UK housing market is in deep deep trouble.”

There have been indications of property owners in some areas of London selling up and moving to the outskirts or different areas of the UK to take advantage of relatively lower UK property prices. Indeed some investors have sold up and used their London property profits to acquire more than one property in other areas of the country. This would seem to indicate that while London was, or still is, in the midst of a house price bubble, it is now starting to deflate a little and optimism spreading to other areas of the UK.

Will London property prices collapse?

Such is the wave of demand from both UK and overseas investors that a short to medium-term collapse in London property prices seems very unlikely. Let us not forget that the UK economy is also picking up, with today’s economic news even better-than-expected, wage rises are starting to materialise again and the affordability factor gaining strength. Indeed the Bank of England believes that wage rises will outstrip inflation within the next two years which will mean real term growth in the money in your pocket.

We may see a levelling off of the UK real estate playing field, we may see general growth rates across the country improve but it is highly unlikely we will see a mass exodus from the London property market. To put this in layman’s terms, in many ways the London property market is a market in its own right outside of the rest of the UK. This is perhaps the only real way to explain the ongoing rise in London property prices – well in advance of the rest of the country.