The average London home price is now double the UK average for the first time in a 41-year period, says global real estate consultant Cushman & Wakefield.
For the first time since building society Nationwide published house price data in 1973, London homes are now twice as expensive as the average UK property. While London wages have also risen, they are by no means on the same trajectory as its house price growth - Londoners only earn 30% more than the UK average, according to the Office for National Statistics. There is also mounting anecdotal evidence of homeowners leaving London, particularly for key commuter hubs, to capitalize on the wide gulf between London and regional house prices.
The current average London house price is Â£362,699 according to Nationwide's house price index; just over twice the UK average of Â£178,124. To put this into a historical context, over the last 41 years London house prices have been an average of 1.5 times higher than the UK figure.
Jack Simmons of Cushman & Wakefield's UK residential development and investment team said, "London house prices still dominate the UK, however affordability levels are beginning to bite for people living in the capital. This is the first time London homes have recorded a value double that of the UK average. We could potentially see a split in the UK with Londoners having to rent while their regional colleagues are able to buy. In the future I can envisage a younger London generation preferring to rent rather than saddle themselves with long-term debt."
Other key Q2 2014 London residential metrics include:
House price growth: London house prices are now 19% above their 2007 peak (+50% for prime).
London house price forecasts: The consensus forecasts for mainstream London price growth is 9.2% for this year and 7.3% in 2015. The strong opening quarter of 2014 means 5.1% is already realized.
UK house price forecasts: The outlook for the UK housing market as a whole has been upgraded marginally over the last quarter. The consensus forecasts are for 7.3% price growth in 2014 and 5.6% in 2016.
London affordability: Mortgage payments equate to 57% of net income for a 95% loan to value mortgage in London. This proportion is set to rise further particularly with interest rate rises. Prior to the global financial crisis this upper limit was around 69%.
UK affordability: Regionally affordability is fair with scope to absorb anticipated house price growth and interest rate rises.
Mortgage approvals: The Mortgage Market Review (MMR) is placing extra administrative burden on mortgage applications which goes someway to explain a fall in approvals of 7% for the first quarter 2014.
Listed housebuilders: For the 5 years to end May 2014 the FTSE All Share had increased 59% compared to an average 141% for housebuilders. Since February, shares in the sample housebuilders have on average fallen 15% compared with flat performance of the FTSE All Share.
Interest rates: Economists expect the first rise to be in the earlier part of 2015, although potentially earlier given Mark Carney's more recent comments (Mansion House speech June 2014). Amongst the 32 economists polled for the Treasury Consensus, the median expectation is for interest rates to be 0.9% by the end of 2015 and 1.6% by the end of 2016 (0.5% currently).
Exchange rates: The value of sterling has risen to its highest level against the US dollar since mid-2008.
Construction: Recent construction data shows a clear divide between the London residential market and the rest of the UK. Since 1980 new housing in London typically accounts for 8% of all new construction, emerging from the global financial crisis this percentage has risen dramatically to 20%. Outside of London and the South East the picture is very different. In value terms, construction output is more than 25% below its pre-global financial crisis peak for 6 of the 11 UK regions. Overall, sentiment for the construction sector is good and regional improvements should be forthcoming (planning applications have picked up significantly in some markets). Given the undersupplied nature of the UK market the long lag back to average dwelling starts is a frustration but the strength of demand versus supply remains an opportunity for willing investors.