The London Housing Market

Is there one?

First I must declare an interest - my job puts me very close to some of the decisions, insights and issues around the UK housing and mortgage markets - so my comments here are purely my own personal opinion.

Whats going on in the UK ? -

I think we all know that the credit crunch added to rising inflationary fears/Western economic slowdown; means that government, banks and most influencial market players are desparately trying to make sure that the UK doesn't enter into a prolonged recession later this year. The UK husing market as a whole is seeing a slowdown in house sales of c30-40% in comparison to last year and most experts agree that house prices will fall by 10-13% by the end of 2008.

That said it isn't just this year that the real problems are going to be seen, and this is where there is most divergence in opinion. The central view seems to be that house prices will fall by another c 5-8% in 2009 and then see stagnation in 2010. Worst case forecast I have seen puts the downturn at c35% in total over the 08-11 period (see Capital Economics recent publications).

The answer from Alex is wrong in a couple of instances ...it will matter much more for those individuals ending up with a high LTV (loan to value) on their mortgage. Going into negative equity is a very big deal as far as the Banks are concerned....why....its because the average life of a mortgage product is now around 2-3 years....and then borrowers have to seek another deal. Try getting a 100%+ deal out in the market now...it's very tough indeed! No lender (or very few now still in business) now wants that kind of risk on their balance sheet (and they can't sell it off now that the securitisation markets are effectively closed - thank Wall Street) ...they cant take the default risk or the capital provisioning that goes with it. This leaves increasing numbers of borrowers forced into staying with their current lender...at much higher rates then when they took out their previous product.....much more expensive! Second - a drop in value in one property is almost certainly not going to be mirrored by a drop in price by the next property in the chain. It doesn't work like that. Some properties will be dropping a LOT more than others ...and some poeple will take a shortterm bath.

What about the London market ? -

London is a big place and the answer really lies in which part of London you refer to. Some areas are already seeing significant reductions and will continue to do so over the next 18 months......but some areas will hold up much better. Added to this is the difference between the type and size of property....hardest hit will be high (but not super high) value properties (£1-4m) where other external influences (such as the confidence in the City) make a real difference. So what we will see in London are some of the property differentials closing out...some 4 beds will become much closer to 3 bed prices etc.

Should you worry? -

There is not an awful lot you can do...

You should move to Norway, the economy is very well put together and most of which are wealthy.

My personal bugbear is the number of homes in lots of cities that aren't being lived in at all. Lots of these places are being held as investments by big firms who know that, even if the house falls into disrepair, the price of the land itself makes it worthwhile to keep hold of. The government needs to use its compulsory purchase powers.

Your tenancy agreement will be in place stating your rent, though you could check your local paper and estate agent for houses in similar areas of yours now and see their asking price.

If this is a dramtic decrease, then maybe your landlord will be willing to make a change. It will probably be a case of supply and demand, if lots of people are willing to rent at the price you pay now, then your landlord will probably think April Fools day has come early this year!

Doubt it.

It will most likjely drop a little bit but not a huge amount as there is a shortage of hosues.

There has been a drop of around 3% since Nov 2007 in the UK, but its actually gone up by 1% in London.

They haven't decreased in London. Unfortunately I don't have a link to show you to prove this, but I heard this on a news report on TV. They have decreased by 1.3% nationwide because in some areas, particularly in the north, there have been decreases of up to 5% which makes national figures appear to be decreasing. In London however, prices are still increasing.

However, whilst selling prices aren't decreasing, the market is stagnant and you could probably expect not to get a buyer for several months. If you were desperate to shift it sooner than this, you would need to reduce the price.

I have also read that it largely depends on how many bedrooms you have. If it's a studio or a one-bedroom then you will be trying to attract first-time buyers, so that's where you'll have a problem: these people are the ones who are now struggling to get mortgages due to the credit crunch. If it were a larger property then you'd be in a better position.

We bought our house in Oxfordshire for £165K five years ago. Houses are still being marketed around the £200K region, but are forecast to fall back to the 2003 level by the doom pundits.

In any capital city property prices show rises and falls far more quickly than the rest of the market. It's hard lines if you bought property as an investment, but the thing to realise is that if you have had to lower your price to sell in London, then so will everyone else. It's a matter of sitting tight and riding out the storm, I'm afraid.

I did see a nice stone cottage for sale on a Greek island for around £7K; with what you've got you could buy that, invest the rest, live the life of Riley and still have a good income!

:-)