In what won’t come as a surprise to many, London is now the most overvalued housing market in the world, new research shows.
According to a report by Swiss bank UBS, price-to-income and price-to-rent ratios have surged to all-time highs and the London property bubble is now the biggest in the world.
“London is by far the most overvalued market in Europe, at risk of a bubble as a result of explosive price behaviour since 2013,” the report said.
The bank noted that house prices have now have decoupled from local household earnings due to increased local and global investment demand pushing them up.
Help-to-buy, buy-to-let investments and ongoing population growth have all helped to stoke demand. Foreign demand, global geopolitical risk and the high property valuations in Asian cities have also helped to drive London house prices up.
In real terms, London house prices are now 6% above their previous 2007 peak, despite a decline in nationwide prices of 18%, UBS said.
UBS advised caution and warned London was now at risk of a “substantial price correction should the fundamentals for real estate investment deteriorate”.
London ranked 1.88 on UBS’s bubble index. The bank says that any city scoring above 1.5 is at risk of a bubble.
Chancellor George Osborne said last week that the Bank of England’s Financial Policy Committee would be given powers to regulate buy-to-let mortgages following concerns borrowers could be exposed following a downturn, which could hit the wider housing market and economy.
According to the monthly Nationwide House Price Index, UK house prices were up 3.9% from a year ago to reach a record high of £196,807.
Meanwhile, data from the Bank of England shows that despite the slight dip in mortgage approvals for the month, total lending in September to individuals rose £3.6 billion, the most since 2008.
