Affordability of London House Prices For Foreign Buyers Increases On Weaker Pound

on Sep 14, 2012

House prices are currently 60 percent below their peak for some foreign buyers, reported Ian Cowie, journalist and head of personal finance at The Telegraph, on the back of gradual devaluation of the pound since 2007.

According to Cluttons, a long-established firm of international chartered surveyors, the massive discounts created by the weaker pound will boost the interest from foreign buyers with the predicted result of a 3.2 percent increase of house prices is Central London. This effect, however, will be limited to the capital, Cluttons said, expecting overall house prices in the UK to fall by 1 percent.

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!m[](/uploads/story/359/thumbs/pic1_inline.png)This won’t the first time that London’s market and the rest of the country have followed inverse trends. It’s been written time and again (including on these pages) about London’s almost irrational ability to defy general UK trends, despite the harsh economic conditions that have developed in the real estate sector since the crash in 2008. London behaves in many respects like a bubble economy. Many analysts and industry experts have predicted that the housing market in the capital would eventually break, saying that the crash is imminent, inevitable, a matter of time. But prime London property has until now thumbed its nose at its naysayers even whilst the rest of the country, and even outlying areas of the capital, have struggled. This effectively establishes a trend toward a two-tier housing market, where house prices keep rising in the capital, particularly in its exclusive areas while falling in the other regions of the UK.

It’s understandable that London is an attractive and prestigious location, especially to wealthy foreign buyers, who spare no expenses in acquiring capital property. The high demand keeps prices bubbling along. However, this creates a scenario that first-time buyers and normal professionals, even quite well paid ones, are priced out of the market. The fact that prices are so high creates a situation where buying property in many areas of London is only affordable to the wealthy. This leaves many with no other option but to rent indefinitely with even this becoming increasingly out of reach in central areas.

There may be a possible solution to this problem. Sue Foxley, head of research at Cluttons sees recent initiatives to improve the availability of mortgages as very encouraging.
“A growing mortgaged first time buyer market means that we are likely to see increased competition for properties at the lower end, which will have a far reaching effect on the whole of the supply chain,” she said. She also expects that The Bank of England’s Funding-for-Lending scheme will have a positive effect, re-energising the debt financing market.

This could counter to some degree the high-demand for London’s property, spurred mainly by wealthy internationals. But with the house prices and rents continue to rise, leaving a lot of young people unable to leave their parents’ home, further actions to help first-time buyers need to be taken. This may also include increased taxes on non-doms or international buyers


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