The buy-to-let market in London is on the brink of a crash, says a City economist.
Speaking at a conference hosted by Investment Week, a sister magazine of Mortgage Solutions, Steven Bell, global chief economist at Deutsche Bank, said the continuing financial service downturn meant many foreign workers will soon be forced to leave London. This will leave a huge buy-to-let oversupply, which could force many landlords out of the market and even deflate house prices.
Bell said: ‘Over 70% of foreign workers [in the UK] live in London. Many work in financial services in the City, while renting in London. However, the financial services sector has been struggling for a while and because there is no end in sight, the rental sector will soon experience a substantial decline in numbers as they leave.
‘The effect will be worst in ‘tube map London,’ or central London. I think there could be negative house price inflation in parts of London by next spring.’
He continued: ‘In the five years to 2000 the number of foreign workers in the UK rose by 28%. What happened in 1990 shows how quickly the inflow gets reversed in a downturn. Foreign workers disproportionately live in London ‘ this is part of the explanation for the volatility of the capital’s housing market,’ said Bell (see graph).
However, Malcolm Harrison, spokesperson for the Association of Residential Letting Agents (ARLA), disagreed.
‘Prime central London has had a problem for the last two years, ever since the dotcom bubble burst. Reports from letting agents are of more activity than has been seen for a while, and there are contract races for the first time in months. While anything is possible in a volatile world, we are seeing an increase in activity at the moment.’