The UK housing market has many different aspects, and increasingly is fragmenting into different sectors which have quite different fortunes. In particular, house prices in the South, and London in particular have increased at a much faster rate than house prices in the north. This means houses in London are increasingly out of the reach of first time buyers. It also has implications for geographical mobility and is a serious disincentive to living in London.
London vs North
There has been a long discrepancy in house prices between the north and south. But, since 2008, this gap has widened. Even after a deep recession, house prices in London have bounced back to almost pre-boom levels. The rise in London house prices has been most marked in properties over £500,000.
Current average house prices Q3, 2011
- London £295,023
- North £116, 610
- UK average £166,596
Change in House Prices London v North v UK
Since 1993, London house prices have increased by 450%. For the North it is a 200% increase, for the rest of UK an average of 260%
First Time Buyer House Price to Earnings Ratios
The cost of London house prices is shown by the very high ratios of house price to income ratios. It means the average London first time buyer faces house prices which are over 6 times average incomes. With banks being strict about not lending more than 3 times average earnings, it means most young London people are priced out of the property market.
Why Are London Prices So High?
- London has its own economy. A significant proportion of demand for houses in London is from overseeas investors who are less affected by a UK economic downturn. This is particularly noticeable in the higher end of the London Market. In London, 7 out of 10 homes over £5million are going to foreign nationals (this is London)
- Shortage of Supply. In London there is an acute shortage of spaces to build new houses.
- Strong economy. London still remains one of the most vibrant and desirable cities in Europe. Many key financial sector jobs are based in London, meaning there is plenty of demand for housing.