The Bank of England should think about impacting a formal limit on mortgage to income multiples to avert a feasible risk of housing bubble in London, an Ernst & Young (EY) ITEM Club special report has recommended the policy makers in the UK.
While the housing sector in the rest of the UK is going to healthy growth, London is beginning to show signs of ‘bubble like conditions’, the report prepared by a highly regarded team of economists has said.
The prices of residential properties are escalating at an alarming rate amid an acute shortage of supply and strong demand in London. The average house price in London is predicted to reach nearly £600,000 by 2018, over three times that in Northern Ireland and the North East, based on the report.
The international interest in the London’s housing sector has also contributed to increasing prices. Affluent foreign investors are making a beeline to buy prime and high-end housing properties in London. The more effective returns on investment in comparison to other parts of the world and a weak pound are some of the factors appealing to investors from all over the world.
The report advises the Bank of England’s Financial Policy Committee (FPC) to prevent people in London from borrowing more than three times their annual income as income multiples are now back to pre-financial disaster levels. Lenders in London have become very relaxed about income multiples and mortgages are generally more than three times the average salary.
The report has great news for the housing sector in the rest of the UK. The report said that housing sector is riding on the back of various government support schemes, enhanced credit conditions, rising employment and an accelerating restoration in the wider economy. It seems to be in much better shape than before the financial crisis in 2008. The report estimates that UK house prices will grow by 8.4% this year and 7.3% in 2015, before coming down to around 5.5% a year thereafter. Housing prices are predicted to rise at an average rate of 6.5% yearly over the next five years.
There will be improve in the housing transactions (over 1.36 million people are predicted to move home in 2018) due to the projected growth in the house prices in UK, that can boost the confidence of house owners and improve their spending power. House price increases will also have a positive impact on the economy as related industries and businesses might benefit, the report has concluded.
While the housing sector in the rest of the UK is going to healthy growth, London is beginning to show signs of ‘bubble like conditions’, the report prepared by a highly regarded team of economists has said.
The prices of residential properties are escalating at an alarming rate amid an acute shortage of supply and strong demand in London. The average house price in London is predicted to reach nearly £600,000 by 2018, over three times that in Northern Ireland and the North East, based on the report.
The international interest in the London’s housing sector has also contributed to increasing prices. Affluent foreign investors are making a beeline to buy prime and high-end housing properties in London. The more effective returns on investment in comparison to other parts of the world and a weak pound are some of the factors appealing to investors from all over the world.
The report advises the Bank of England’s Financial Policy Committee (FPC) to prevent people in London from borrowing more than three times their annual income as income multiples are now back to pre-financial disaster levels. Lenders in London have become very relaxed about income multiples and mortgages are generally more than three times the average salary.
The report has great news for the housing sector in the rest of the UK. The report said that housing sector is riding on the back of various government support schemes, enhanced credit conditions, rising employment and an accelerating restoration in the wider economy. It seems to be in much better shape than before the financial crisis in 2008. The report estimates that UK house prices will grow by 8.4% this year and 7.3% in 2015, before coming down to around 5.5% a year thereafter. Housing prices are predicted to rise at an average rate of 6.5% yearly over the next five years.
There will be improve in the housing transactions (over 1.36 million people are predicted to move home in 2018) due to the projected growth in the house prices in UK, that can boost the confidence of house owners and improve their spending power. House price increases will also have a positive impact on the economy as related industries and businesses might benefit, the report has concluded.
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