What is the relationship between mortgages and London house prices ?
Evidence of strong correlation between average London home prices and the amount of mortgages available
It would be no surprise that the price increase in average London homes appears to be driven by large mortgage increases nationwide. This view seems to be shared by an analysis by financial writer Dominic Frisby1.
The graph above shows how mortgage balances significantly increased from 2007 (when the Great Recession) occurred with mortgage balances of around £507bn by March 2007 to a jaw-dropping figure of £1,310bn or £1.3 trillion by March 20232. This represents a +158% increase in mortgages.
Similarly, in the same time period average London home prices increased by +91% over the same time period (based on modelling on price changes of London dwellings found from the UK Housing Price Index3.
The evidence does suggest that London home prices have largely been driven by the circulation of mortgages given the strong correlation. Yet, there could be other factors not incorporated but will be worth exploring the impact of other factors like increase in stamp duty tax , further restrictions on foreigners securing non-dom status in the UK.
Corrections:
The graph should show "Average London prices of homes” rather than “Average London House prices”.
https://moneyweek.com/investments/house-prices/uk-housing-market-set-to-fall
https://www.fca.org.uk/data/mortgage-lending-statistics
https://landregistry.data.gov.uk/app/ukhpi/browse?from=1986-06-01&location=http%3A%2F%2Flandregistry.data.gov.uk%2Fid%2Fregion%2Flondon&to=2021-02-01&lang=en