London property bubble about to burst

The London property ‘bubble’ is showing signs of collapsing and more people are moving into negative equity, predicts property company PPR Estates.

According to its Distress Index for the third quarter of 2011, PPR Estates is expecting 3,450 distressed seller enquiries, up from 3,208 in the second quarter. And the number is likely to rise up to 3, 474 in the last quarter of this year.

The firm receives hundreds of sales enquiries each week from distressed homeowners, landlords and businesses wanting to sell their properties. Increasingly sellers are trapped in negative equity. Currently, PPR cannot help over 90% of enquiring individuals as their properties are worth less than their assets.

Despite record low interest rates this problem is getting worse for many struggling sellers as rising inflation, household income falls, high unemployment and the mortgage famine continue to bear down on house prices. In the same period last year PPR was able to help over 15% of sellers outside London.

London

The London property ‘bubble’ has been pumped up this year as international sovereign debt worries and regional employment stability combined to drive up prices for the very limited supply of homes on sale.

However, in the last month PPR has started receiving enquiries from worried property owners in riot-affected areas of London who are now seeing sales fall through and a collapse in buyer interest.

This change in market sentiment may well prove to be the event that bursts the unsustainable London property bubble that’s built up over the last year.

Nick Hopkinson, director of PPR Estates, said: “Two very different property markets have emerged in London and across the rest of the UK in the last year.

“London has been the one area of the UK to buck the downward house price trend. Prime London prices, limited supply and cash-rich international buyers have masked the real state of the housing market by propping up the national statistics.  PPR has had relatively few distressed enquiries from London sellers as a result of this unique dynamic.

“However, since the recent riots PPR has started receiving enquiries from worried owners in affected areas such as Lewisham, Croydon, Walthamstow and Tottenham who have seen buyers withdrawing their interest.

“We are also aware of international buyers withdrawing from investment purchases as a result of a loss of confidence in the ‘safe haven’ investing benefits of London.  As we move into autumn I fear this may prove to have been the catalyst that bursts the London property bubble.

Outside London

Hopkinson continued: “Outside London PPR is receiving hundreds of distressed seller enquiries every week. Perhaps even more worrying for both the lending banks and the individuals involved is that PPR is not able to help 90% of the distressed seller enquiries we receive as they are in serious negative equity.

“Detailed analysis of our enquiries indicates this trend is getting worse as the current economic slump grinds on.  Many owners are trapped and it is difficult to see how they are going to escape as inflation and the cost of living continue to creep ahead of household income growth.

“I fear that the generally bleak economic outlook for UK PLC means we are facing further house falls this autumn.”