Is the London Property Bubble about to Burst?

Posted by Ross Jones-Morris in

Academics at the University of Lancaster have released a new report claiming that Britain's booming property market is not actually a bubble, as people have previously claimed. The report does say however that the London market is overinflating, and could burst in 2017.

The UK Housing Observatory at the university carried out the research, which claims that despite exceeding the price highs seen in 2007, the British property market is inflating at a sustainable rate.

The report also warns however that prices in London (up 11% in the last year) are on the cusp of collapsing. Since the bottom of the recent market in Q1 2009, prices in the capital have increased by 83% on average, with the average homebuyer having to shell out £443,400 for a home in the city.

The bubble being created in the capital - they claim - looks like it may burst within six quarters. That is, if real house prices continue to grow at their current rate of 2.75% per quarter.

The report was developed by looking at house prices (adjusted for inflation) plotted against disposable income. In different areas of the UK the relationship between these two variables has diverged dramatically, with those in London seeing soaring house prices without corresponding increases in income. In contrast, people in the North West have seen incomes rising quicker than house prices.

The author of the report, Ivan Paya summarised his motivations as follows, "Boom and bust in housing markets has a major impact on people's lives. UK housing prices have reached a new high, surpassing those of 2007, and it's important we try to anticipate the kind of price crashes that lead to negative equity and hefty, disproportionate mortgages."

Image courtesy of Flickr, Creative Commons.