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London Separates From The Uk (apparently)

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London finally breaks away from Britain

By Edmund Conway

Last Updated: 12:01am BST 31/05/2007

So it has finally happened. Slowly, silently, and without most of us noticing, London has detached itself from the rest of the country and is now floating off serenely into the sunset. There were cracks and moans as the tectonic plates started to shift in recent months, but it was not until yesterday that the Land Registry finally confirmed it.

House price growth across London has hit a five-year high, it said. Meanwhile, values in many other parts of the country are dropping, with property prices in Yorkshire and Humberside tumbling at their fastest rate in at least seven years.

The economic dichotomy is expected to yawn wider still in the coming months, which prompts the unsettling question: might vast swaths of the country be sliding towards a housing crash while London experiences the biggest boom in recent memory?

advertisementIt looks increasingly likely. More than ever before, London and the South East are behaving almost completely independently from the rest of the country. The smartest parts of the capital are experiencing the biggest boom since the 1980s.

Prices have been catapulted sky-high, as bankers, hedge fund managers and lawyers cash in their bonuses on property. Thousands of multi-millionaires from around the world want to live in London's poshest postcodes - think Mayfair, Chelsea and perhaps Notting Hill. There simply isn't enough room to house them all, let alone the less well-off families who are priced out of the market. At heart, it is simply a dramatic mismatch between supply and demand.

Meanwhile, in the rest of the country, house prices are flatlining at best - and are falling in many regions. In these counties and cities, which are rarely touched by the money gushing out of the Square Mile, life is getting very tough indeed. Interest rates have climbed up from a post-war low of 3.5 per cent to their current level of 5.5 per cent. Many City experts think there will be a further couple of increases - the next of them perhaps as soon as next week.

This is causing problems for property investors, too. A study this week from RICS, the surveyors' association, showed that buy-to-let landlords are having to ratchet up rents at an almost unprecedented rate to try to make any money from their investments. In fact, an increasing number are being forced to sell up.

Rates at six per cent may not seem like much of a hardship in comparison with the late 1980s and early 1990s, when the government lifted borrowing costs as high as 15.4 per cent - but don't be fooled. Because we are all now more indebted than ever before, we are much more sensitive to even the smallest twist of the screw.

This will only get worse. If the Bank of England does lift rates a couple more times, the proportion of our monthly incomes spent on mortgages will hit the highest level since the midst of the last housing crash.

But a word of reassurance: even if some parts of the country do see house prices fall, the impact on the economy as a whole will not be as severe as in the last crash. Back then, prices slumped dramatically and left one and a half million people facing negative equity.

This time around, banks have been more reluctant to let people over-extend themselves, and so aren't lending quite as generously as they were before. They, after all, are the ones who pick up the bills if people start defaulting.

The fact that we now have an independent Bank of England is another key advantage. Unlike in the late 1980s, when borrowing costs were set with the disastrous aim of making the pound shadow the Deutschemark, the Bank will react if the housing market tanks and will cut rates if things start looking hideous.

Gravity will soon catch up with the London housing market as well, though in its case what happens to interest rates will be far less important than the fate of share prices and bond markets.

The best that households can do right now is to tighten their belts as much as possible, avoid running up new debts and think very carefully before plunging into the buy-to-let market, where the potential returns are now looking far from tidy.

Whether it is buy-to-let or simply over-indebted households that eventually ***** the bubble remains to be seen. And as for the timing, and the amount prices fall: well, as the Bank of England Governor, Mervyn King, frequently says, guessing that is a fool's game.

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it just reinforces my view that london is a completely separate market to the rest of the UK

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it just reinforces my view that london is a completely separate market to the rest of the UK

That's right it has the lowest rental yields in the country. London is due a massive correction.

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it just reinforces my view that london is a completely separate market to the rest of the UK

I wonder how many of the national media's journalists and editors own houses in London, as opposed to outside it?

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This time around, banks have been more reluctant to let people over-extend themselves, and so aren't lending quite as generously as they were before. They, after all, are the ones who pick up the bills if people start defaulting.

The fact that we now have an independent Bank of England is another key advantage. Unlike in the late 1980s, when borrowing costs were set with the disastrous aim of making the pound shadow the Deutschemark, the Bank will react if the housing market tanks and will cut rates if things start looking hideous.

Both points are absolute rubbish. Conway should be sacked for writing such inaccurate drivel.

1. Multiples of 5/6+ and self-cert were unheard of in the 1980's.

2. the BOE does NOT target house prices, they've said so repeatedly.

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I wonder how many of the national media's journalists and editors own houses in London, as opposed to outside it?

I would start with Express. Either that, or they've hung onto their "investments" outside London for too long.

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I was in Kensington last night....what a great place to live for those that can afford to.

I'm not surprised people pay such huge amounts to live in the best areas of the city.

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I was in Kensington last night....what a great place to live for those that can afford to.

I'm not surprised people pay such huge amounts to live in the best areas of the city.

Having moved to Parson's Green recently I know what you mean. I love it there and wondered why I took so long to move. I know exactly why the demand is high. And prices are way above what I could afford on an IO mortgage.

But rents are still static.

The choice I seem to face now is: do I give up living in such a nice area so I can get on the ladder in somewhere like Brixton?

I dunno.

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That's right it has the lowest rental yields in the country. London is due a massive correction.

London has the highest rental yields in the country.

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Both points are absolute rubbish. Conway should be sacked for writing such inaccurate drivel.

1. Multiples of 5/6+ and self-cert were unheard of in the 1980's.

2. the BOE does NOT target house prices, they've said so repeatedly.

Totally agree. He is a complete disgrace. What's more he is inconsistant as well. Both of the points you made he has also made in previous articles. I think he must be a 'neither' as he keeps changing course or perhaps he spends a lot of time in the local boozer as his output is hardly impressive.

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In 2004 if someone had said that London would crash, I would have laughed in their face! The rest of the UK was clearly experiencing unsustainable HPI, but London seemed more reasonable, more in line with the higher earnings that you typically get in the capital.

However, the last 3 years have seen London play catch-up. Instead of being the area that is unlikely to be hit badly by a crash, the feeding frenzy that has ensued now guarantees Londons place at the top of the crash victim list.

Edited by redalert

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Guest Cletus VanDamme

Nothing new here, all following the pattern I predicted 18 months ago: crash starts in the regions 2008, hits London 2012 or thereabouts.

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I was talking about the UK not NZ.

I'm renting my London flat out while I'm in NZ. The yield assuming 100% mortgage would be 5.6%. The yield against my outstanding mortgage is 8.5% (30% equity). And for the record I am not BTL.

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Nothing new here, all following the pattern I predicted 18 months ago: crash starts in the regions 2008, hits London 2012 or thereabouts.

2012? what's your reasoning behind that?

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it just reinforces my view that london is a completely separate market to the rest of the UK

This is true. It's great here :)

London is Europe's (and arguably the world's) financial capital right now, and is supported by the highest GDP per head in Europe - and 45% higher than the UK national average, so this would support those views.

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I'm renting my London flat out while I'm in NZ. The yield assuming 100% mortgage would be 5.6%. The yield against my outstanding mortgage is 8.5% (30% equity). And for the record I am not BTL.

I think you should be calculating your yield on current market value rather than what you paid for it which is what your figues suggest. Using current market value on my flat in W4 the yield comes out to about 4% take off fees and voids etc leaves about 3.5%. This is typical for W4.

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This is true. It's great here :)

London is Europe's (and arguably the world's) financial capital right now, and is supported by the highest GDP per head in Europe - and 45% higher than the UK national average, so this would support those views.

...but the average salary in London is circa £60,000 last time I looked, so about 250% average UK salary (granted very unevenly distributed in London), so the multiples don't really stack up.

S.

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...but the average salary in London is circa £60,000 last time I looked, so about 250% average UK salary (granted very unevenly distributed in London), so the multiples don't really stack up.

S.

i think you need to be seriously loaded to live comfortably in london- or you need to have paid off your mortgage- unfortunately for me i dont fall in to either of these categories.

And i completely agree about London being financial capital of europe- the only way i can see london prices plumetting is if there is a financial crisis-which decimate the financial centre- i know bears say that a hpc would cause this- im not convinced.

Edited by IDN

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...but the average salary in London is circa £60,000 last time I looked, so about 250% average UK salary (granted very unevenly distributed in London), so the multiples don't really stack up.

S.

That is one of the funniest/dumbest statements i've read today (and given that i've read a few newspapers today that says a lot).

The average salary in the City might be £60k (I still think that's too high but have no figures to back it up) but the average salary in London sure as hell ain't anywhere near £60k.

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i think you need to be seriously loaded to live comfortably in london- or you need to have paid off your mortgage- unfortunately for me i dont fall in to either of these categories.

How come there isn't a mass exodus of service workers from the capital? Surely crazy living costs should be forcing out doctors, police, firefighters, train drivers, bin men etc. Or is council tax going to rocket in order to help them with stupid SO schemes and the like?

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How come there isn't a mass exodus of service workers from the capital? Surely crazy living costs should be forcing out doctors, police, firefighters, train drivers, bin men etc. Or is council tax going to rocket in order to help them with stupid SO schemes and the like?

the people you've mentioned are sitting on goldmines- they're not going to sell in a hurry

that and the hassle of uprooting

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