London's property price bubble continues to grow

Cost of prime real estate in the capital's most expensive borough rises to an average £2.2m, as stream of foreign buyers snap up safe havens

PUBLISHED : Wednesday, 17 October, 2012, 12:00am
UPDATED : Thursday, 25 October, 2012, 8:11am

Asking prices for homes in London hit a record high this month as values in the exclusive borough of Kensington and Chelsea rose to an average £2.2 million (HK$27.4 million), according to Rightmove.

Prices in the capital's most expensive district increased 9.1 per cent from September, the operator of Britain's biggest property website said in a report.

Values in London rose 4.8 per cent to £478,071, while the average across England and Wales gained 3.5 per cent to £243,168.

"There is a prime central London price bubble that keeps expanding," said Miles Shipside, Rightmove's commercial director. "While there remains a shortage of supply and a stream of foreign buyers looking for safe havens, the bubble will continue to grow."

While Rightmove said the national rebound indicated the market was not performing "as badly as some feared", it noted downward pressure from the difficulties prospective homebuyers continue to have in getting a mortgage. The Bank of England and the government are trying to rectify this with a programme aimed at giving banks cheaper funds in a bid to boost lending.

Nationally, all 10 regions in England and Wales tracked by Rightmove posted monthly price rises. London led the gains, followed by the West Midlands and the Southeast, both of which recorded increases of 3.9 per cent.

In London, the new price level in Kensington and Chelsea exceeded the previous record of £2.1 million set in June.

It's "partly a bounce after the Olympic-induced activity doldrums," said Shipside. "Some Londoners, especially those in the upper price brackets, had the option or sense to delay marketing their properties."

From a year earlier, house prices in London rose 6.2 per cent this month, while values in England and Wales were up 1.5 per cent, according to Rightmove.

Analysts Acadametrics said house prices based on its transaction measure fell for a third month in September. Values slipped 0.1 per cent from August, while sales slipped 24 per cent to about 50,000, the second-lowest level for a September since records began in 1995.

Bank of England data on October 1 showed mortgage approvals were little changed in August at 47,665. That is less than half the monthly average in the decade to 2007 before the financial crisis.

"After a summer of sporting distractions, optimists may consider lower unsold stock levels and strong pricing to be signs of recovery," said Shipside.

"However, sellers still need to be mindful that the window of opportunity to sell before the traditional winter slowdown is a narrow one and they risk being left out in the cold for months."