London’s housing market is beginning to show “bubble-like conditions” as overseas investors bid up prices and buyers take on more debt to purchase properties, according to a report today by the EY Item Club.
Homeowners are now borrowing as much relative to their income to purchase real estate in the UK capital as they were before the financial crisis, the London-based economic forecaster sponsored by EY, formerly Ernst and Young, said.
The average London home will cost about £600,000 by 2018, it estimates. It is around £404,000 now, according to the land registry. Prices across most of the UK “remain well below their pre-crisis peaks and there seems little danger of a bubble,” Andrew Goodwin, senior economic adviser to the EY Item Club, said in the report.
“But London, which is suffering from a combination of strong demand and a lack of supply, is increasingly giving us cause for concern.”
Surging London home prices, buoyed by demand from overseas investors and government initiatives to aid buyers, have prompted economists, analysts and politicians to warn of unsustainable gains. Asia has been a particularly strong source of demand for the best London properties, EY Item Club said, citing brokers.
Investors from countries such as China and Singapore are taking advantage of the pound’s depreciation since the financial crisis to buy London homes.
