Properties are expensive. Especially in London, which is not particularly surprising, as the capital of the UK is regarded as one of the most expensive cities in Europe. But why are the properties so expensive in London?
We are looking at five reasons why the property prices in the capital are as high as they are. And some of them are quite surprising.
People love London. We love London, too! Everybody loves London, and this is why many choose it as their place on the pale blue orb revolving around the big fiery ball of gas known as Sun. People from all corners of the world recognise London as "the" place to be. With access to the financial heart of Europe, worldwide cuisine, culture, the vibe of this magnificent city, and, of course, the close proximity to Her Majesty the Queen, the capital of the UK is one of the most sought after areas considered for relocation.
Whether people come here permanently or move somewhere else after a few years, they need a place to stay, and the property entrepreneurs recognise it by bumping up prices. In fact, with the popularity of Airbnb and short term rentals, London's housing stock has never been in so much demand.
We are now truly entering the realm of price determination and good, old economics. The reality is as simple as that. Accommodation in London is in very high demand and has been for years. Between 2017 and 2018 only 31,723 new homes were built in London, while it's estimated that to keep up with the demand we need at least 77,000 houses to be built each year. The capital's housing stock is shrinking.
Ok, this one sounds a bit strange but bear with me. With many construction initiatives and developers offering incentives to allow first-time buyers to get onto the property ladder, other buyers end up being locked out of the deal.
The average London salary is £37,078 (source: Annual Survey of Hours and Earnings November 2018), and it is a relatively healthy wage, which, in principle, should allow for a quite comfortable lifestyle. On the surface it looks like a very attractive salary, especially if two adults within the household are in full-time employment. And as much as it looks great on paper, living in the capital is still quite expensive. UK homeowners residing in London, on average, spend 67% of their net monthly income repaying their mortgage. This leaves them with only 37% of which has to be distributed between bare necessities, such as commuting and clothing, and small luxuries. Like food. And if you own a horse, just multiply it by 7.
On the other hand, London is home to extremely well-paid employment sectors. The leading financial institutions, multinational corporations, law firms, international marketing agencies, not to mention celebrities, footballers and public figures. Many can, and will, afford mortgages on £900,000 homes.
Don't mean to be controversial. It is a well-documented fact. Right before the economic crash in 2008, in the years 1996 to 2008, lending more than quadrupled as banks were giving incredible amounts of credit for mortgages. Many have decided to take a plunge and relocate, which in turn resulted in property prices booming in London to the levels not seen before. Homebuyers were able to secure 120% mortgages at the time, and the number of mortgage approvals for house purchases peaked in December 2003 at 132,737 nationwide.
Interestingly, in October 2019 it was announced that the property prices in London fell by 0.4% on average. According to the data published by The Land Registry and Office for National Statistics, detached home in the capital still typically costs over £898,000, but this is 1.6 per cent lower than in 2018. Despite the drop, however, London still is the most expensive place in the country to buy a property and very little suggests that it's going to change in the foreseeable future. In fact, the post-Brexit market will most likely stabilise, and as new investments come to town, we will yet again witness London's property prices creeping up. The result of the general election has brought a degree of political certainty and outlined the landscape of the British economy for the upcoming months, if not years. The most recent prediction, however, is that house prices in London will rise by 2% from the start to the end of 2020.