Since June this year, the former has flattened while Greater London has assumed the mantle of the UK’s ‘go-to’ property destination. Covering less than 1% of the UK’s landmass, London and Greater London contribute almost 22% of UK GDP according to the Office of National Statistics and, of the nine statistical UK regions measured by the government, Greater London returns a ‘Gross Value Added’ per capita of £34,200, followed by the South East at £20,923. By comparison, the North West returns £17,263 and West Midlands £16,788.
The UK market has clearly felt the impact of MMR with lenders, according to the regulator, being overcautious in the face of regulatory scrutiny. This over-tightening has affected consumer and lender confidence. Monetary policy too, in the form of interest rates that are unlikely to rise until the end of next year, has had a clear effect on lending volumes and made the prospect of a resurgence in the remortgage market less imminent. Of course, when interest rates do eventually rise, the impact in an area such as London will be magnified due to the high loan multiples.
But the central London market is experiencing its own correction. Over the next five years, it’s widely thought that London will be the worst performing region with the South East and East of England performing best. This would tend to reinforce the view that affordability is driving people out of London but more accurately it is driving buyers out of London. Strong demand for accommodation and low levels of affordability will continue to fuel the buy-to-let market. Given that lenders aren’t as active in high LTV/large loans, the market stretch in the last year impacting London has gone beyond both buyer affordability and mortgage affordability.
The arrival of new niche lenders next year will mean more loans through broker distribution but also herald a fight for market share in a stagnating market. We can expect mortgage pricing and criteria to come under pressure as lenders seek to hit targets. This will support strong property prices which will please lenders trying to hit their targets and brokers working on commission. One valuer in a recent survey commissioned by Legal & General Surveying Services cited pressure to ‘upvalue’ as being a potential issue next year. It’s certainly true to say that many lenders do not seem to have a clear view on their exact lending targets for 2015.
It’s not often so much uncertainty clouds the fortunes of the UK’s property market but at worst, London will meander next year and return to growth thereafter. Greater London will provide the growth in the intervening period adding fuel to the idea that, while London and Greater London could never be called bullet proof, together they remain an immense force in the global property market.
Steve Goodall is managing director of Legal & General Surveying Services
