Following the recent news that property sales in London are up almost 40%, it would appear that now is as good a time as many to cash out of the big city while you can. With further Interest rate cuts by the Bank of England on the horizon (meaning more buyers buoyed by cheap mortgages to sell to) there is, if not already, a captive market desperate for London properties.
So sought after is London as a place to live and work, that even the recent Brexit vote hasn’t dented buyer demand in the city. The current situation is so lucrative that many looking for an easy sale have used professional house buying companies to take care of the deals on their behalf. It’s not hard to see why when leading property buyer Open Property Group’s key fast house sale features take care of legal costs and remove estate agent fees, making life very easy indeed.
But what about those looking to get on the Market?
Those looking to get on the property ladder or add to their existing portfolio will have been heartened by the Bank of England’s decision to slash interest rates to a historic low of 0.25%. In theory this should mean lower mortgage and borrowing costs for homebuyers and owners alike but what are the real effects of the BOE’s intervention? London has already become notorious for house prices that have fast become out of reach for many ordinary people and many will hope that the interest rate cut will help to ease the city’s housing crises.
The Negative Housing Cycle
As mentioned above, the recent drop in interest rates also translates into cheaper mortgages becoming available, but the problem with London is that high property prices will still require that buyers have a substantial deposit available. At the same time, as interest rates become lower, prices in the market may reflect the availability of more capital by going up. This unique situation becomes a negative cycle, as market forces react to the stimulus measures implemented by the Bank of England.
There is no doubt however that the lower interest rates will help potential homebuyers have access to cheaper rates of borrowing and perhaps lower deposit requirements but what can be done to fix London’s’ housing problems?
How can London’s Housing Crisis be solved?
As one of the world’s leading capital and a major financial hub, London has long attracted a diverse influx of talent and capital from all over the globe. This is now reflected in the multicultural look of the city and also has the downside of having wealthy investor’s outbid local buyers on property and business opportunities.
Wealthy buyers from china and the Middle East and other parts of the world snap up London property, including some of the city’s most iconic landmarks, at market prices that seem out of this world and unsustainable. This has created a situation where the average working Londoner is unable to compete and get on the property ladder, a situation that needs to be addressed to arrest the astronomical cost of homes in the city.
Industry analysts have long advocated for a bigger percentage of affordable homes within any new developments to ensure Londoners are not pushed out by rising housing costs. Indeed, some form of Government protection of the ordinary man on the streets’ ability to own a home in the capital has to be devised. In addition, restrictions could be placed on the foreign ownership of London property, such as requiring buyers from abroad to have at least one local partner, for example.
While such suggestions may seem counterproductive from a free market point of view, it is clear that many are already priced out of the market.
Other suggestions include developing better and more efficient transport links into the city from the surrounding commuter towns to reduce demand for housing in the capital, as well as redeveloping Brownfield sites to create more housing and ease shortages. By extension, the Government should cut the landlord tax to stop rent rates rising as well as encourage investors and companies to consider cities in the north so that work opportunities are more spread out and housing demand does not remain concentrated in one area as is the case now.
It remains to be seen whether the lower interest rates and other external factors such as Brexit will help lower prices and improve access to the housing market in the capital. In addition, much of any gains that can be made to relieve the housing crisis will require a strong intervention by government through legislation and an injection of capital into long neglected areas and regions.