A month ago, Rightmove released figures showing the average asking price of a property in London had risen by £80,000 since the beginning of 2014. In reaction, lenders announced moves to try and control spiralling house prices, including a cap on lending for borrowers in the capital of up to four times their salary.
This was a little surprising as it suggests the brand spanking new MMR with affordability calculations does not work in London, and/or lenders cannot rely on their own affordability calculators or the sophisticated scorecards that have been stress-tested over many years. Regardless, all this does little to address one of the real problems fuelling London’s housing bubble – cash investors.
From our own research we know 22 per cent of properties are now bought with cash – no mortgage required. In London, this is higher, at 25 per cent. Alarmingly, overseas investors make up the largest proportion of cash investors in the capital, with reports stating that Indian investors account for 19 per cent of purchases, while Middle Eastern and Russian investors make up 13 per cent each.
With this in mind, no intervention by the Bank of England or high-street lenders is going to make a difference when cash is king. Instead, the only common denominator is tax and, in particular, stamp duty land tax. This begs the question, should the government charge a higher rate of tax to overseas investors, as it currently does to corporate bodies?
For example, for non-UK residents the stamp duty could be lifted in the £250,000-500,000 bracket from 3 per cent to 7 per cent, £500,000-£1m from 4 per cent to 10 per cent and £1m plus to 15 per cent, which is the rate corporate bodies are charged above £500,000.
In the best-case scenario this could help to alleviate the speed and level of house price inflation in London, fuelling behaviour that impacts the rest of the market. In the worst-case scenario, it would just increase revenue to HMRC.
For the rest of the UK, problems in the housing market feel closer to home. For the past 12 months, the Government has been offering people access to homes via Help to Buy. More than 13,000 homebuyers have benefited since launch, 95 per cent of which are located outside London, so it has been helping to drive the rest of the market and keeping the chains moving.
However, feedback from estate agents is already suggesting that media hype around the London market is causing sellers to have inflated expectations when putting their property on the market, as well as showing reluctance in accepting good offers. The National Association of Estate Agents has reported nearly 20 per cent of properties sold are being sold above the original asking price.
Curbing the London problem will not only resolve London price inflation but could also have the necessary behavioural impact on the rest of the country.
We will then be able to understand that we do not have an out-of-control house price inflation problem but one that has been overhyped by the London market. We are, after all, still delicately poised for economic recovery.
Dev Malle is group sales director at myhomemove