House prices reach record high while London faces property bubble

Tuesday, 19 November 2013

The British housing market has been going from strength to strength over the past few months, and data from the Office for National Statistics (ONS), released in October 2013, suggests that house prices have reached a record high.

The ONS figures reveal that the average house price has reached £247,000: the highest price since records began in 1968. The ONS index takes transaction prices into account, as opposed to just mortgage approval numbers, and also gives more weight to houses in London.

While property prices in most of the UK are rising steadily (apart from in Scotland where they’re falling), London is experiencing a mini bubble all of its own. House prices in the capital jumped by 10% in October, with Sky News reporting a “frenzy of activity in parts of prime inner London.”

Westminster is the best performing region in the capital, while Kensington, Chelsea, Hammersmith and Fulham are also experiencing above average price increases: with the average home sitting at nearly 30 times the average local salary.

Estate agent Knight Frank notes that 70% of the most expensive properties in London are being bought by foreign investors: 65% of whom plan to rent out the homes rather than living in them. While the property owners still have to purchase home insurance policies and pay for utilities, there’s some debate around how much they’re contributing to the British economy overall.

The government is considering imposing capital gains tax on foreign investors to tackle the current bubble, which is pricing locals out of the housing market. At the moment the tax only applies to British residents selling a second home: with the government claiming 18% of the profits (or 28% from higher rate tax payers).

Imposing a tax could mean an influx of millions of pounds for government coffers, and is unlikely to discourage foreign investment. Yolanda Barnes of Savills spoke to the Guardian saying that “It is a relatively modest tax paid only on gains – and if it erodes the case for a mansion tax it could boost the market.”

Sources:
1. http://www.bbc.co.uk/news/business-24533059
2. http://www.bbc.co.uk/news/business-24707577
3. http://news.sky.com/story/1157279/london-house-prices-leap-10-percent-in-just-a-month
4. http://www.theguardian.com/money/2013/oct/31/george-osborne-capital-gains-tax-overseas-buyers

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