London House Price Correction

London House Price Correction Warning.

Nationwide Building Society has issued a warning that the London property market may face a ‘natural correction’ as the mortgage market alters.

London property prices have grown dramatically compared to the rest of the UK as demand outstrips supply.

Nationwide issued its warnings as it reported huge rises in lending with a quadrupling of profits for this trading year.

Comment

Reasons for High London Prices:

• Population set to increase by another 1 million in the next few years
• London experienced economic recovery faster and before other parts of the country
• London accounts for 25% of total UK GDP i.e. the economy, earnings and demand are all higher

Reasons for a Correction:

• The Mortgage Market Review (MMR) started on 1st April 2014 meaning that mortgage lenders and brokers have a greater responsibility for suitability and affordability when assessing a client’s needs when taking out a mortgage, including stress testing where borrowers should be able to afford a mortgage if interest rates rise and income falls.
• Some major lenders are already restricting how much they will lend
• The EU has issued new rules meaning banking groups must have additional capital set aside to survive i.e. stress testing in difficult economic times so that we do not have another banking crisis
• Risk of interest rate rises in late 2014 or early 2015
• London property price rises looks set to slow and areas outside London will rise at a faster rate