When would elevated mortgage risks be priced into London property prices ?
#ukmortgages #pompompricing Exploring what portion of London dwellings are sold per year and what does this mean over time
Currently, based on internal modelling estimates, a very small portion (i.e. less than 2.5%) of London homes are sold per year. We can infer that any impacts of elevated mortgage risks that would encourage owner-occupier or buy-to-let landlords struggling to pay their mortgages to sell may not be apparent within the next 12 months.
Rather, it would make sense that these impacts may be more apparent within a few years, where residential sales represent a larger portion of London dwellings. Also it is worth caveating that the anticipated residential sales are based on internal modelling.
The model incorporated what was the median of residential sales volume on an annual basis from the UK House Price Index1, Plumplot2 from 2016-2020. In this calculation it was assumed the total residential sales in London included actual purchases rather than transfers of title deeds (which could be due to tax purposes, gifting a property within a family and etc).
The model then took the average number of London dwellings from 2016 to 2020 from the ONS3 to give the median number which was approximately 3.6m. By dividing the median annual sales volume of residential properties and London dwellings, it shows on an annual basis from 2016 to 2020 that these sales only represent approximately 2.5% of dwellings (as shown under Figure 1 below).
Given this small portion only covers anticipated sales in 1 year (which appears to be consistent as it is the median figure based on London residential sales as a portion of London homes over a 5 year time period), we can infer this pattern is likely to repeat in the future. It means that the number of London properties sold within 5 years could be as high as 17.5% of total London dwellings. This is based on the assumption within 1 year, 2.5% of London homes are sold, by year 2, 5% of London homes are sold, by year 3, 7.5% of London homes are sold and etc.
We could then reasonably infer that any real impact on London property price declines due to a less favourable property environment (e.g. high borrowing costs, increased stamp duty rates, removal of interest rate tax reliefs) will show within at least one to two to even five years from now !
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
https://www.plumplot.co.uk/London-property-transactions.html
https://www.ons.gov.uk/peoplepopulationandcommunity/housing/datasets/subnationaldwellingstockbytenureestimates