Data released by the Land Registry has opened up a very interesting debate on the gap between property prices in Greater London and the rest of England/Wales. It would be foolish to suggest that the gap will ever reach parity but figures from May show the average price of property in England and Wales now stands at £221,832 with Greater London standing at £472,163. This is still a gap of over two times but it is an improvement on figures from March which showed Greater London property averaging three times that of England/Wales.
There appear to be a number of factors coming into play which have reduced the gap between different areas of the UK.
Low finance costs
Just last week we saw the Bank of England reduce UK base rates to a record low of 0.25% as attempts to offset any fallout from the Brexit campaign continue. It is debatable whether this latest reduction in base rates will be replicated by the banking community but it certainly reduces the cost of finance in general. As a consequence, it seems as though there is now greater demand across the rest of the UK, outside of Greater London, where rental yields in particular now compare favourably to finance costs.
It will be interesting to see whether the tightening of mortgage regulations reduces the flow of finance in the short to medium term. This is a possibility although the reality is that the banking community still need a buoyant property market to strengthen their balance sheets in the longer term.
London premium under pressure
We are now in a situation post the Brexit campaign and successful referendum whereby it is unclear what kind of relationship the UK will have with the European Union in years to come. Indeed there has been talk of financial giants moving away from London as a means of maintaining a foothold in the European Union single market. We have seen these threats before but when you bear in mind that a significant portion of London property is acquired by those in the financial sector this was bound to have some kind of short-term impact on demand.
Many will also argue that London property prices have been out of touch with reality and the rest of the UK for some time. It is worth noting that we have been here on numerous occasions, with many calling the deathknell for the London property market, only for domestic and overseas investors to return. Never write off the London property market and in the medium to longer term maybe this “blowing of the froth” off buoyant property prices could be a blessing in disguise.
There does seem to be genuine interest for property in other areas of England and Wales especially with interest rates at record lows. Whether we have seen some switching from London properties to more rental yield attractive northern properties, as one example, is debatable. The London property market tends to go through periodic phases of consolidation without any real collapse in prices. Will the financial markets really desert the UK? Can the European Union really afford to shut out one of its biggest customers?
At this moment in time some of the more experienced property investors are waiting on the sidelines ready to pounce on distressed sellers.