London house prices overvalued by 50% – homeowners warned to ‘expect big correction’
House prices: Expert discusses 'interesting' pricing differences
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Over the past two years, house prices in many areas of the UK have risen to dizzy heights, with buyers being outbid by tens of thousands of pounds. However, new research has revealed houses in London have been overvalued by as much as 50 percent, raising fears of a looming correction.
While many escaped London for the suburbs or countryside, some moved to more desirable areas of the capital, while a few got on the housing ladder for the very first time during the pandemic.
New research has revealed house prices in the capital are likely to fall over the next few months.
It comes as a researcher for S&P Global Ratings, part of S&P Global looked into the long-term property price averages and compared them with income data for its calculations.
Alastair Bigley told The Telegraph his findings: “A combination of low rates, the stamp duty holiday and excess savings amid the pandemic have driven property prices higher, particularly in London and the South East where overvaluation relative to income over the long-term is as much as 50 percent.
“We expect a greater correction in property prices in an overvalued market.”
Out of 32 London boroughs, the top three which reported the highest monthly change in house prices between February and March were:
- Haringey: 4.7 percent, £655,764
- Hillingdon: 2.7 percent, £543,437
- Kingston upon Thames: 2.4 percent, £683,359
The three London boroughs that recorded a negative monthly change between the same time frame were:
- Lambeth: -1.3 percent, £649,307 (average house price)
- Newham: -0.4 percent, £447,913
- Hounslow: -0.2 percent, £569,704
All three areas are still showing positive annual growth, though they do all rank within the bottom six of London’s 32 boroughs.
As for areas outside London, S&P estimated that properties were overvalued by 20 percent.
The researcher said house price rises were “a consistent trend” across the pandemic, which was not initially noticed due to the disruption to the international economy.
The UK is not the only place where house prices had risen, Europe also experienced sharp increases in prices since the pandemic began.
In terms of how an overvaluation affects homeowners, higher prices result in more equity and have minimised defaults.
a rush to buy before mortgage costs rise further.
According to the property website Rightmove, the average home now costs £354,564.
As for first time asking prices, they have risen above £350,000.
Earlier this month, homeowners increased their asking prices by an average of £5,760 or 1.7 percent – the largest monthly rise in spring since 2004.
Rightmove’s Tim Bannister said that the market is expected to slow in the second half of the year as economic headwinds dampen consumer confidence.
He said: “We’ve just seen interest rates rise again, and there are further incremental increases forecast for the year which will raise mortgage rates for some.
“Inflation and cost of living increases are also likely to affect buyer affordability and market sentiment.”
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