The financial crisis is still having an effect on the London housing market

New research released this week claims that the property market is still feeling the effects of the 2008 financial crisis, caused by overexposure to sub-prime toxic lending in the US among other factors.

The financial crisis is still having an effect on the London housing market

The research, released by Savills, claims that existing homeowners are struggling to trade up, that there is a doubling of typical first-time buyer deposits, and a “huge gap” between London and the rest of Britain.

The report says that the financial crisis, which it considers to have begun in August 2007 when the French bank BNP Paribas froze three investment funds, is “still shaping the UK housing market”. It also says that the market is “more divided at a regional level than ever before”. Over the past decade, London price growth has been twice that of the south-east and at least four times that of all other regions.

It goes on to highlight the fact that the average house price in London is £478,142 compared with the rest of the UK where the average price is £209,971. In codifying its assertion that the crisis is still affecting the market today, the firm highlights a large slump in spending and transactions at a domestic level. In purely financial terms, a total of £312bn was spent on house purchases in the year ending March 2017 – £30bn less than at the same stage ten years ago.

Further to this, mortgage lending consisting of borrowers with a deposit of less than 10% has reduced to less than a fifth of the level of 2007, which then stood at £52bn. Mortgage lending to borrowers with a deposit of less than 10% was at 14% in 2007 but now stands at 3.9%.

Following on from much tighter lending criteria being applied, the average deposit required to purchase a house for the first time has doubled in those 10 years to £26,224. This is nothing in comparison to London where the average deposit of £21,196 required in 2007 has now risen to an eye watering £97,513.

The Guardian also reported that first-time buyer deposits totalled £10.2bn in the year to the end of March 2017 – up 85% on 10 years ago. They also estimate that more than £4bn of this came from either “the bank of mum and dad” or government schemes such as help to buy.

It’s not only first-time buyers who are struggling though, with fewer current homeowners able to move in an upward trajectory. Figures from 2007 suggest that one in 15 existing homeowners were moving home 10 years ago in comparison to just one in 27 this year.

There were further suggestions that the residential market was slowing, with the HomeOwners Alliance stating that in May 2017, only 55% of property listings resulted in a successful sale, compared with 59% at the same time last year. The rest of the listings were either taken off the market or remained listed.

The picture in London is rather bleak, with just 37.3% of listed properties resulting in a successful sale compared with 48.3% at the same time last year.

So what conclusions to draw from this research then? Well it’s not exactly surprising that there are still struggles within residential property when we take into consideration that inflation is rising whilst wages stagnate. Everyday costs are rising more quickly than earnings and UK savings rates are plummeting.

The contrasting reports coming from the regions isn’t unsurprising either, with the North West in particular enjoying strong house price growth at the same time as the London market begins to languish. London property was, for a long time, the safe haven of property investors seeking safety in the storm but with this influx brought a distortion and, it seems, this is beginning to correct itself.

Off-plan property remains healthy and buoyant whilst northern domestic property grows at a healthier and steady rate in comparison to the capital. This, for property investors, spells a simple message; off-plan property is still outperforming domestic.

There is also the fact that as domestic property struggles to find its level and subsequently people struggle to afford it, there are more renters in the market looking for a rapidly decreasing stock of available housing. With off-plan property and premium city centre apartments at a premium, this should spell good news for UK investors.

yieldit vertical - April 2019

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