The cost of property in London is increasing too fast for it to cope with, online property giant Rightmove has warned.
According to statistics, the cost of an average property in London has risen by a monumental £50,000 in the past month alone with further increases expected in the upcoming months.
Furthermore, the average market value of a single property in London had risen by more than 10% to £544,232 this October, which is up over £50,000 from last month. In comparison, the average price rise for properties outside of London was a lot more understated with values only rising by 2.8% in the last month.
The company has warned that if the current trend continues, that it will result in many people being unable to afford property in the capital, despite the governments help to buy initiative.
They have argued that whilst the initiative will undoubtedly aid consumers in the rest of the UK get on to the property ladder that Londoners will continue to struggle as the cost of property will simply be too high to even afford the deposit.
Currently, the average property in London is over double that of the UK average and with property prices set to increase further, the risk of pricing out young buyers in particular is growing all the time.
A Rightmove spokesperson said: “In London, the buying power required to get on to, or move up, the housing ladder means you have to tap into the Bank of Mum and Dad rather than buy courtesy of a helping hand from Uncle George. Indeed, nearly two in five would-be first-time buyers in the capital state that they expect to receive parental assistance.”
The Help to Buy Scheme was initiated earlier this year in order to help people get into the property market, especially the younger generation.
Earlier on this autumn, the second part of the scheme was unveiled which has enabled prospective buyers to purchase property and only have to put a 5% deposit down in order to do so. Furthermore, banks have begun providing mortgages with up to 95% loan to value which the government has promised to guarantee 15% of. This applies to property up to the value of £600,000 and has currently resulted in thousands of new people becoming homeowners in the past few months.
However the impact in London is more skewed, with the average cost of a more up market property in the city totalling just under £950,000. This would mean that the scheme wouldn’t even assist people who are looking for property in this range.
Commentators have argued that if the current pattern continues, and property prices continue to escalate, that people will soon be unable to afford the 5% deposit value in London. This would mean that the government’s conduct would have been counterproductive as it would have invoked a change in the market that made property even more unaffordable to prospective buyers.
Many have cited that the real issue is actually with house building, and have identified that increasing demand without producing ample supply will culminate in an artificial inflation of house prices that will eventually price people out of purchases.
Nationwide recently produced statistics that indicated that house prices had increased by 5% in the UK this year, compared to 10% experienced in London. This compares to the annual rate of 1% that was being displayed at the start of this year, highlighting the impact that the initiative has had on the property market.
The statistics have been used by critics of the scheme to reinforce their claims about a potential housing ‘bubble’ being created that will eventually burst.
Warnings have also been issued about how people will be able to afford their mortgage repayments after their introductory rate comes to an end. Many government backed mortgages currently offer very competitive interest rates that run for an initial term, but then increase to a higher rate after the period comes to an end.
However, Rightmove have indicated that mortgage repayments is a far bigger issue in London than deposit requirements and as such the initiative is doing little to aid the cause of prospective homeowners in the UK.
Ben Broadbent, a Bank of England official warned about the potential dangers of the scheme citing: “The numbers entering the scheme are relatively low. And although interest rates will at some point start to rise, you’ve got to remember quite how low a level we are starting from. I think there is a fair amount they could go up before borrowers got into great difficulties.”
The price increases coming after a period of small drops in property prices in the period between August and September. In London, property prices fell by 2.8% and 1.5% in August and September which represents an unusually high amount.
The severity of these drops has been forwarded to account for the sharp increase in October.
Nevertheless, it appears that the effectiveness of the scheme is lower in London and that Londoners arguably are risking more than they are looking to gain from the initiative. Irrespective of the truth of this, it is worth looking at the prices of property in the upcoming months to assess whether the concerns could become a reality in the near future.