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Vertex FX 10

London Housing Bubble?

There is a growing concern that the UK government’s flagship scheme to help first time buyers access the housing market will fuel a property bubble. On Monday according to data released by Rightmove, the average house price in London is now above £500,000 for the first time. Low borrowing rates, demand outstripping supply and buy-to-let rental yields have all fuelled the surge.  Analysts are highlighting that the Chancellors scheme to help many individuals access the property market, will push prices higher and further out of reach for future generations, with current Governor Mervyn King commenting that the scheme must not become permanent. The likelihood is that there will be a correction in property prices, but the variables of the timing and severity are disputed. 

The FTSE 100 surged yesterday to close at the highest level since September 2000, as investors search for a return, fuelled by central bank easing and record low borrowing rates. (Most of Europe was closed yesterday for a religious holiday) Investors search for a return has seen a transfer of investment from precious metals and Government paper into equities, which have pushed stocks to multi-year highs.  The economic medicine of ultra-loose monetary policy from central banks will need to be normalised which is likely to cause a major correction.


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