London could enter a bubble by 2017 if house price growth continues at 2.75% per quarter, a new report has warned.
According to Lancaster University’s UK Housing Market Observatory report, there was also a risk that the ripple-effect of a bubble in London could see surrounding regions hit.
However, while property prices are currently at a record high, there are no signs of bubble-type activity at a national level, the report said.
Based on figures from the Nationwide regional house price database, London house prices have risen by 11% in the past year.
This increase has not been matched by a rise in wages, which has left many people priced out of the property market.
The last time that Greater London real house prices were identified to be in a phase of exuberant rises was the fourth quarter of 2007.
The report said that historically, phases of exuberant house prices are often followed by a sudden crash, which leaves homebuyers with large mortgages and negative equity.
“Moreover, there is evidence that London is leading the UK National Housing market, the so-called ripple effect, and there is therefore a risk of bubble-type behaviour spreading to surrounding regions, and from there to the rest of the UK. Such concerns are supported by the indicators of the London Outer Metropolitan area, which have been increasing over the past year,” the report said.
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