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London: a unique property market?

by: Alison Beech
  • 12/07/2011
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London: a unique property market?
At the beginning of July, Knight Frank revealed that property prices in prime central London had increased for the eighth month in a row – and to a record high. This is far from the picture across the rest of the UK.

So, is the capital a market within a market?

For some London postcodes, this certainly seems to be the case as its attraction as an international business and financial hub continues to drive wealthy property purchasers to buy or invest.

Different parts are seeing the same boost to prices, but for different reasons.

Perennially sought after ‘W’ postcodes are experiencing an influx of money from wealthy foreigners looking for trophy homes and, over in East London, Olympic euphoria and service supply is driving investment.

In the top end of the market, elements of postcode snobbery remain, with relatively modest properties in the ‘right’ location attracting eye-watering sales values and rent.

In contrast, in the mid to lower end, buyers are often forced to balance the cost and time of travel and discounted or more affordable property values.

The nature of the London property market has implications for the lending industry.

A one-size-fits-all approach to product offerings and attitude to risk will not work and lending criteria and underwriting need to recognise the unique characteristics and provide bespoke solutions.

I think it’s healthy that this allows for a mix of players to operate – from private banks, wealth management arms of high street brands and experienced names, to new entrants. It will be interesting to see how these develop over the coming months.

The picture is complicated further when we look at the situation for key workers and first-time buyers.

The unintended consequences of Basel III and capital requirements puts pressure on lenders to restrict LTVs, but do they have a social responsibility to these vulnerable groups or is imposing public policy the answer?

As artificial interference risks damaging the market and perpetuating or exacerbating problems, flexible rental solutions such as lodging and house shares are increasingly common as people adapt.

So, what is the solution to dealing with the crucial and complex microcosm of the London market?

It’s critical that legislators, local and national government, developers and lenders understand the issues and collaborate to develop joined up solutions.

Perhaps developing public policy to protect disadvantaged and key worker elements and letting market forces do the rest is the only workable option.

Certainly, London presents risks and rewards for lenders and investors alike and needs to be treated with respect, caution, care and intelligence.

By using experienced advisers players in this market can ensure they protect themselves and we’ll continue to have a dynamic and vibrant market.

Alison Beech is business relationship director of Valunation

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