Five Factors Affecting the ‘London Bubble’

Firstly, what do I mean by the ‘London bubble’? Well, the bubble I’m referring to is the high prices of London, and I’m going to be looking at whether COVID-19 could be the re-levelling point we needed to pop it. Below, I’ll go through the five key factors I’ve established as potentially having an effect on it. By no means do I have the answers, but here’s some food for thought…

1. Average wage to average deposit

Currently, the average apartment in London stands at about £550,000, and the average terrace house is around £750,000. Most lenders want a five times multiplier to purchase a house – meaning you’d need to be on £100k per year to qualify for a mortgage. The average wage in London is still around £37,000 a year according to payscale.com, which creates a massive gap between earnings and price of deposits.

2. Foreign Investment

Even through the last recession, the London property market accelerated (to my surprise). Why? Foreign investors parked their money over here, as we had a really strong legal system. To add to that, the pound was really cheap at the time. This investment was what drove capital growth up, not so much home buyers. Since then, however, stamp duty has meant a lot of changes to taxes for foreigners buying into the UK; making it now less attractive for them to buy and, inevitably a decline on that front. 

 3. Major Employers Relocating

In more recent years, the powerhouse of the north scheme started between the government and foreign investment, resulting in major employers basing themselves in other areas of the country; proving that you don’t have to be London based to succeed. And in fact, you can thrive just as well, with the added bonus of much lower overheads, when starting up further North. Whether it be Manchester, Leeds, Liverpool etc – it’s a huge game-changer, as the infrastructure in these areas is quickly improving.

4. Increased Virtual Working

Due to the current pandemic, everyone has had to adapt to working at home. Although most would have argued it would never work for their business; it has and will continue to do so. So successfully in fact, that some employers are considering it as a permanent change, so as to downsize or completely get rid of their expensive offices. For a long time, there’s been a talent war down South. Everyone flocked to London for the job opportunities; thus inflating the cost of living. However, COVID has proved that the same roles can be filled remotely, or in physical spaces in other areas of the country – at the same salaries, but with a much better quality of life. A London base just isn’t as essential as it once was.

5. Oversupply of Houses

In the event of the above happening, a lot of office space is going to become empty. What will this do for the market? Potentially create a situation where developers come in and build loads of apartments. Although there’s been an undersupply of properties in the South East for a while now if so many more are being built at a time where living in London isn’t all that attractive, we may have the opposite issue; an oversupply. 

So is this going to cause a decompression of London? Is the London bubble finally going to pop? If you consider the above factors, it is very possible. I, unfortunately, don’t have a crystal ball, and also wouldn’t wish for a downturn as I have my own properties in the South East, but there is a very real threat. When you match the above with the fact the millennials of today just are not as interested in buying as the baby boomers were, it’s very clear we could get left behind if we don’t evolve our ideas. 

London will always have a certain level of desirability and a certain level of pull, as there will always be nostalgia related to its history and reputation. But as Robert Kiyosaki says, and I must say I agree, there could be a massive re-correction of wealth. It’s happened before; the North was notorious for its steel industries, coal mines, railway etc a few hundred years ago. Plus, to this day, Hartlepool has created more millionaires than any other part of the UK, including London. Where the infrastructure is, the property and wealth will be. And perhaps we’re looking at it not being London in the near future.  

So, those are my theories on the five factors currently affecting the ‘London Bubble.’ Do you agree? Disagree? Have anything else to add? Let me know in the comments below, as I’d love to hear your thoughts. And remember – if you don’t evolve your ideas, you’ll never live on your own terms.