We’ve read various news reports in recent times that have pointed to the danger of a housing bubble forming in the market. The prospect of this has been partially supported by the measures the government has taken to open up the market to more buyers.

However, in reality the housing market as a whole may not be the main concern. According to recent reports there is increasing concern that the London housing market could be heading for a bubble.

Office of National Statistics releases surprising figures

House prices were on the rise throughout the country during November 2013, the latest month for which figures were available. On average the increase was 5.4%, but this was in stark contrast to the figures for the capital. Here it turned out the rise was an incredible 11.6%.

The think tank Civitas has also weighed in on the issue. They believe foreign buyers are creating the problem, causing house prices to rise sharply as a consequence.

Figures from Nationwide back this up

Nationwide found that average house prices went up by 8.4% across 2013. Once again this was in stark contrast to the prices paid for London based properties. The average figure here was 14.9%.

Properties bought as investments

Another major problem in the London housing market is that many properties are being bought as investments rather than to live in. This means few of them actually remain in the pool of properties that could be bought, sold or rented.

This in turn has created a problem for people living in the capital when it comes to finding affordable properties they can buy to live in. More people have to rent rather than buy, and this is far from being cheap either. Plenty of people are struggling to find anywhere affordable to live, whether to buy or rent.

The situation is steering income multiples ever higher, and this is one of the factors that leads to a housing bubble being created in the first place. The higher prices go and the bigger the gap is between income and the multiple required to afford such housing, the more chance there is of a housing bubble. Indeed, current reports suggest the income multiples currently seen in the capital are in roughly the same place they were before the housing crash seen a few years ago. This means the bubble has to burst sooner or later as few can afford the prices being asked for these properties.

It remains to be seen what – if any – measures will be taken to try and prevent such a crash from happening in the capital. The rest of the country is not at risk of a crash, since the price rises are significantly lower than they are in the capital. However many will be watching the situation in London very closely indeed, to see whether it spreads. Putting a stop to foreign buyers purchasing properties as investments is a lot harder to do than it may seem.

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