DEBATE: Are falling house prices in London a good thing?
Are falling house prices in London a good thing?
Daniel Hegarty, founder and chief executive of digital mortgage broker Habito, says YES.
Provided it stops at a pricing correction and doesn’t go further, the drop in house prices is good news.
London’s sky-high prices have left the average 34-year-old first-time buyer needing to borrow 13 times their earnings and save £90,000 for a deposit. Before this summer, the average price of a first home had risen by two thirds in just five years, to hit £420,000.
Prices were scorching, and are now cooling down. True, a prolonged or drastic drop would hurt more than help, if developers were to down tools as their profits were squeezed and recent buyers risked slipping into negative equity. But so far that isn’t what we’ve seen, and the overheated market needed a correction.
The biggest falls have been seen at the multi-million pound end of the market, but this needs to trickle down to the less pricey boroughs to help the majority of first-time buyers.
Older homeowners, meanwhile, who have built up a comfortable equity stake would be left largely unaffected by a small fall – and should they need to move, they would also benefit from lower house prices.
Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyors (RICS), says NO.
The appeal of lower house prices in London is understandable
following the sharp increases seen in recent years, which have pushed property out of reach for many households. It would be ideal if this simple solution were a way of addressing this problem.
Unfortunately, a downshift in prices brings its own very real challenges. There is already significant evidence of developers rebalancing their build pipeline away from the capital, reflecting both the pressure on margins and the more hostile tax environment.
And this, critically, also has knock-on consequences for the delivery of more affordable tenures, with reduced community benefit planning obligations (known as S106) inevitable as the viability of schemes is impaired.
Meanwhile, the prospect of a material drop in prices could see lenders adopting a more cautious approach to providing mortgage finance, certainly on the attractive terms currently available.
This is not to say that a renewed uplift in prices in the capital is desirable, but that adjusting to the new reality is not without its problems.