Average Price for a London House Goes Above £500,000
Since November 2020 the UK real estate market saw many records broken. We can add one more to the list. The official figures show that the average price for property in London went above £500,000. Furthermore, the Office of National Statistics (ONS) analyst claims that this is a historic first.
The stimulation of the current situation comes from two sources. First, there was penned up demand for property purchases because of the lockdown measures from the beginning of 2020. Second, the government introduced the stamp duty holiday for houses that are below £500,000.
An additional reason for the increase in property value across the UK was the experience of lockdown. Many people saw the need for property outside urban city centers. Also, the experience of working from home became a reality for thousands of people. Combining the two leads people to consider living in suburban areas where they have access to more space and greenery.
Together these factors lay behind the boom observable at the moment. In turn, the prices have goon to historic highs. In London, the highest increase is in Kensington and Chelsea. Where the prices went up 28.6% and the current average price is £1.5m. Furthermore, in Brent, the recorded growth is 20%.
Experts claim ONS claim that the increase in London prices may be a result of the tax cuts. Demand is increasing and with it property prices. Even though there is a tax cut if prices go above £500,000, the property tax will increase accordingly. If property prices are higher, the tax is also. The perceived benefit of the real estate boom may, in the end, create higher taxes.
Besides the increase in prices, there is also an increase in mortgage loans. The Bank of England claims that the number of approved loans rose to a five year high in December 2020.
On the other hand, estate agencies report an increase in activity also. People are registering to their websites, and they are requesting viewings, making inquiries, etc. The London based estate agency Chestertons claims that they last saw such an increase in activity in 2012.
All the figures are pointing at positive results. However, we should not lose sight of the fact that this boom is the result of a pandemic. The pandemic is causing economic uncertainties that we navigate every day. Besides this, the Brexit deal was finalised, and companies need time to adapt to the new regime of work. Such a situation is causing more financial trouble.
On the other hand, property prices are up, and they are breaking records. Higher prices mean that taxes on those properties are also higher. This situation benefits the treasury, but it may not help the citizens in the long run. Furthermore, borrowing for a mortgage is also up. In essence, people are now in more debt than they were when it comes to mortgage borrowing.
If, in the worst-case scenario, prices fall after the boom subsides, how long will it take the market to return to this level of activity? We can only speculate. But this has a real consequence on property value because people may lose money. Such a scenario may happen if property prices fall, and the job market experiences uncertainty. Hopefully, none of that will occur drastically, and we will weather the storm.