London property prices boosted by bankers' bonuses

Published 21st Feb 2011

London penthouse London property prices are rising, in sharp contrast to other parts of Britain. Photograph: Sarah Lee for the Guardian

Bankers' bonuses and mortgage lending rules that favour the super-rich have pushed up house prices in London, resulting in a 21% jump in the number of people looking to sell their homes compared with a year ago, and a 4% rise in asking prices since last month, according to a leading property website.

While property prices in the rest of the country are falling, prime areas of the capital are buoyant with more homes appearing in estate agents' windows with higher price tags attached.

February is traditionally bonus time in the City and this year, banks, fund management firms and hedge funds are paying bumper top-ups to their generous salaries. Accountancy firms and City lawyers are also getting pay rises as the stock market recovers and corporations announce strong profits.

Last year a combination of public anger and the poor state of bank finances depressed City payouts.

But several banks have made it clear the time for apologising is over, and bonuses are justified to reward key staff.

The monthly report from property website Rightmove paints a stark contrast between London's "elite market" and large swathes of Britain which remain frozen by a combination of falling prices and restricted mortgage finance.

In the capital, new sellers have increased their average asking prices by 4.2% this month, compared with January, to £430,680.

Lenders are attracted by low loan-to-value deals that help them build a more profitable and lower risk mortgage book, so look to the well-heeled areas of the country. This supports an active but low volume market in the more affluent parts of London.

Across Britain, sellers increased their asking prices by 3.1% this month from January to an average of £230,030, virtually unchanged from a year ago. About 1.3m properties came on to the market last year but only 530,000 mortgages were granted, and 2011 is set to be similar, according to Rightmove. Halifax and Nationwide, which track house prices nationally have predicted a gentle fall in prices this year, largely reversing gains made in the wake of the financial crisis. City firms predict anywhere between a 3% to 8% fall in prices.

Economic consultancy firm Capital Economics said prices could fall by 20% this year to bring them more into line with household incomes, which have declined to their 2005 level.

Nick Hopkinson, director of PPR Estates, said: "With house sales volumes remaining on the floor, even the estate agents acknowledge that current asking prices are more a reflection of home seller fantasy than what anyone else will really pay in 2011 for property across most of the UK. Only super-premium London properties are achieving anything like asking prices due to a very limited availability of multimillion pound property being sought by cash-rich foreign buyers.

"This does not apply anywhere else. Mortgage lending remains strictly rationed with no real prospect of a lending thaw in 2011 according to the main lending banks."

Rightmove has identified the emergence of a three-tier market where lenders court "bargain-hunting bottom feeders" and the "low loan to value elite" of those with big deposits, but largely shun the mass market of the average buyer. In the economically depressed areas of the country where forced sales are becoming more prevalent, some sellers are falling prey to bargain hunting investors – cash-rich buyers who seek out distressed sales.

"Any hopes that transaction volumes may be on the springboard preparing to return to historic norms will have been dashed by lenders' predictions that 2011 lending volumes will match 2010's dire levels," said Miles Shipside, director of Rightmove.

"Mr Average will be left out in the cold in the buying and selling game unless the beneficiary of a hereditary handout. The current subdued market volumes are set to be the new norm unless the seemingly never ending discussions between government and mortgage lenders find some way of increasing Mr Average's access to lower deposit mortgages without pricing them out of the market."

Rightmove criticised lenders for not lending support to first-time buyers who are struggling to save up the large deposits now required – banks are chasing the lucrative market of buy-to-let investors instead:

"If substantial lending is targeted at buy-to-let investors to snap up lower priced properties rather than helping to support the more needy market of potential first-time buyers, it shows that mortgage funds are available in this price bracket but are being denied to those who need them most."

Traditionally, new sellers will try for a higher price during the spring season. Rightmove noted that, while the supply of property has improved compared with last year, overall supply remains "woefully low" in historic terms in London, pushing up prices, while nationally prices and volumes remain flat.

Britain's housing shortage is deepening, with the number of new houses built in England dropping to a record low last year, down 13% on 2009, according to official figures. Just 102,570 new homes were completed – the lowest peacetime number since 1923.

The Home Builders Federation (HBF) says 232,000 new homes need to be built every year to 2030 to meet demand.

However, HBF reports that just 33,000 homes were approved for construction across the country in the last three months of 2010, 9% down on the previous quarter and 22% lower from a year ago. Social housing was hardest hit with only 5,500 approvals, a new and particularly concerning with 5 million people already languishing on local low authority waiting lists.

The HBF's executive chairman Stewart Baseley said: "These figures are extremely concerning. A reduction in permissions granted now will see fewer homes built in future years, exacerbating the already acute housing shortage we are currently experiencing."

Source: ' Guardian '

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