Is it wise to buy a house now in London’s fast-moving property market?
As the UK economy continues to recover from a severe recession gradually, house prices in the capital continue to rise. London has experienced record house price growth during the last three years, and many property experts predict that this situation will continue for at least the next three years. So the question many property buyers are now asking themselves is, “should I buy a London property before prices escalate any further?” To reach the right decision, it’s worth performing a little research of your own into the local housing market.
Are you a first-time buyer looking to buy a home in London?
If you are a first-time buyer, it’s important to remember that a home bought quickly today needs to deliver value for the future – particularly if you’re hoping to upsize at some stage. A recent article on the Telegraph website revealed that buying a house in London when house prices have risen so quickly in recent years may not be a great idea.
Interest rate rises are seemingly just around the corner, and this could mean property value growth cools considerably for the next few years. And while some property experts are predicting house price growth of up to 25 per cent for the next four years, there can never be any degree of certainty where house prices in the UK are concerned.
If you are like many first-time buyers in the UK, you will be thinking about building up equity for the next decade or so and cashing it in eventually for a more extensive property as your family grows. However, with high house prices in London, there is a risk that you’ll be buying at the top of the market. So it may be prudent to buy just outside London or to wait a few years until the Bank of England raises interest rates to what will be their long-term position. Only then will house price growth stabilise.
Are you prepared to gamble on future house price growth?
Despite countless predictions of what will happen to London house prices over the next few years, no one can say with any certainty precisely what the future holds. According to a recent report on the Thisismoney website, London house prices grew by almost 18 per cent in the twelve months leading up to February 2014, around double the national average. However, the same report suggests that this house price growth is spreading to other areas of the UK, which may be a sign that people are now deciding that living in London is just too expensive.
According to the same report, the Office of National Statistics recently revealed that the annual inflation rate is four times higher than the average wage increase. This situation is unsustainable, and it might mean that house prices eventually reach their peak during the next three or four years. Buying on the crest of this property value wave is something of a gamble, and you need to be aware of the financial repercussions if things don’t go your way.
Do you believe what experts are predicting?
It’s always a good idea to get financial advice from experts before buying property in such a booming market. Many people bought a property at the height of the last bubble in 2007 and left with property that depreciated by as much as 30 per cent just two years later. However, this is easier said than done, as different experts and financial bodies predict very different futures for the London property market. The Royal Institute of Chartered Surveyors recently reported that the exceptional rates of house price growth recently experienced in most parts of central London have started to diminish – no doubt because of the looming interest rates rises.
However, Savills believes that house prices growth will continue to remain strong until 2018, after predicting UK property values will grow by nearly 26 per cent between now and then. The international estate agent also pointed out that the annual rates of house price growth probably won’t stray beyond three to four per cent during that period.
How important is living in London to you?
Some people become so used to living in London that they become blind to the possibilities of living elsewhere in the UK. However, just moving a few miles outside the capital can often be the difference between a lifetime of renting and getting your foot on the first rung of the property ladder. Moving to a commuter town such as Reading could mean you get a lot more for your money.
A recent article on the Guardian website revealed that the careers of young Londoners are being jeopardised just because of the rising cost of living there. Homes bought in London are selling for up to 105 per cent of their initial asking price at the moment. So if you are at the early stages of your career, and you insist on living in central London, the chances are you’ll need to share your home with others.
Unfortunately, London’s astonishing house price growth expects to be far higher than in areas outside the South East of England for many years. Even if you can afford a property in the capital, upsizing as your life changes could become very difficult – especially given the fact that wealthy tycoons from American and Asia are snapping up investment properties all over London at the moment. If at all possible, moving a little farther afield could drastically improve your standard of living.
Can you afford to wait to buy a house in London?
The need to buy a house in London may take priority over everything else. If your job or private life requires that you live in the capital, waiting around to see what happens in the local housing market could mean you end up paying a higher price. A recent article on the Thisismoney website revealed that house prices in London rose by 2.7 per cent in August 2014 alone. According to the same report, the average cost of a home in the capital was £467,000 in August, which meant homeowners saw the market value of their property rise by an eye-watering £12,279 in just one month. Gambling on the market cooling in the next few months may be the best idea, but it could mean you end up paying more for your home if it doesn’t go your way.
Whether you wait around for prices to cool or you act now to head off further house price growth depends on exactly where you are buying your home in London. For instance, some up-and-coming areas are reasonably affordable yet are still showing strong house price growth – these areas include the likes of Shoreditch, Dalston and Brixton. The area around the newly developed Kings Cross is also in high demand; just a few years after, it was considered one of the less desirable areas of the capital. And while prices in the likes of Peckham have increased by over 30 per cent during the last three years, homes there are still a great deal more affordable than in most areas of central London. So if you have to buy a house in London, there are still areas that provide value for money and house price growth potential.
Are you prepared to look at alternatives to the traditional ways of buying a house?
Rather than scouring the highly competitive and inflationary open property market, you may be able to pick up a bargain if you have the funds in place and the freedom required to proceed with a house purchase in London quickly.
House price growth in London has been phenomenal in recent years. While that is fantastic news for homeowners looking to sell, it has been devastating for local people trying to get on the property ladder in the city. In truth, the growth rate is already slowing, but there will always be a significant price differential between houses in London and houses elsewhere in the UK. As London house prices are expected to show an annual rise of at least three per cent every year for the foreseeable future, now may be the time to buy property in the capital if you can.