London ranks one of the most expensive areas in Europe to reside in, especially Central London. Over time, the property rates have skyrocketed – with a property costing an avg. of £523,666, marking an increase of 4.8% since March 2021 (UK House Price Index for March 2022).
The property prices are expected to increase up to 18.8% by 2026, in the UK and regions surrounding it, as per reports issued by Savills,
In this blog, ANWA Properties explores why property rates have increased in London.
- Credit approval for Low-Interest Rates
A variable that has significantly affected the cost of property in the UK to rise is the approval of housing credits and loans to borrowers on low-interest rates offered
This progression granted easy access to huge amounts of credit for mortgages, accelerating the effect on the housing market. The thump impact of this is that it is easier to return the amount over time as the banks approve colossal home loans and credit to nearly any individual who asked.
This led to an increase in the demand – in this case, buying a home, against the supply – the number of available units, which has caused the cost of properties to increase.
Given the recent changes, the interest rates by the Bank of England were increased to 1.75% (Reuters). The reason for this increase has been cited below in this article.
- Increasing Mortgage Rates
The mortgage rate in the UK has increased to 4.09%, marking an increase of 1.75% from 2.34% in December 2021 – revealed a report published by The Guardian.
This development has forced the borrowers to explore new housing loans to repay the mortgage price.
- Low Salaries, High Inflation Rates
The UK is currently witnessing 40-year high inflation of over 10%, since 1982.
The increase in the cost of living has limited the borrowers to buy a house, in the given salary earned – which is an average of £30,000 annually. The average mortgage repayment accounts for around a third of the average monthly income, equating to a total of almost 33% of monthly income.
The rising inflation affected everything, including the rate of interest for home buyers to 1.75%, making it almost impossible to buy a home.
This over time, will result in the cost of properties rising this year.
Apart from buying a house, the rising inflation has also affected the rental rates of properties to increase as well. This has halted the influx of revenue in the real estate market of the UK.
- Brexit & Post-Covid Era
Finalised on 31st January 2020, the real estate market witnessed a drastic fluctuation post-Brexit – there was a slowdown in economic activities.
Not cited as a direct impact, the cost of properties rose after the economy was reshuffled, bringing back home many UK natives, creating a high demand for available housing units, and a short supply of housing units.
While the UK’s economy grappled with Brexit, the entire world was hit by the outbreak of COVID-19 transforming life and activities as we know it. To deal with this pandemic and cater for people, almost every industry bent – by decreasing prices and rates especially interest rates for housing, for longer expected.
In a bid to increase economic activity, the banks approved housing credit to borrowers, which, in turn, increased the demand to buy a property – as stated in the first reason cited by this article.
Post-COVID-19, with the world relaxing travel restrictions, new policies were introduced to speed up economic growth, which included welcoming foreign investors and buyers. This created an erratic demand and supply of housing units, adding to the property rates to surge.
London has been a magnet, attracting foreign investment. As UK’s economy steers its way through these issues post-COVID-19, the prices of houses are expected to decrease in the coming year.