London Housing Affordability to Slump as Demand, Lending Surge

Housing in London will become less affordable over the next two years as increasing consumer confidence and foreign demand push prices higher, according to Fitch Ratings.

A 20 percent increase in mortgage lending this year from 2013 will also see the average London home price to income ratio, already as much as 40 percent above the U.K. average, climb further, Fitch said in its Global Housing and Mortgage Outlook report released today. Home prices will climb strongly throughout the U.K., and rise moderately in the U.S. and Australia, it said.

“Driven by an economic recovery and supporting policies, the next two years are likely to see growth in new gross lending in most countries,” analysts led by Andre Dahlkamp wrote in the report. In major global cities, “we expect affordability to be stretched further over 2014, thereby increasing downside risk.”

The U.K. government’s Help to Buy program, which guarantees mortgages to people who can only afford a small down payment, last year led to the biggest increase in home values since 2006. In the U.S., higher mortgage rates, expected to climb further as the Federal Reserve tapers its bond purchasing program, will cut refinancing by as much as 50 percent this year, according to Fitch.

Europe Declines

Nominal home prices will fall 4 percent in Italy and 5 percent in the Netherlands, 7 percent in Greece and 10 percent in Spain from the third quarter of 2013 to the end of this year, Fitch said. Foreclosures in Ireland are forecast to rise from low levels following moves to ease repossessions, it said.

In Australia, affordability will worsen this year as housing price increases outpace income growth, Fitch said. Mortgage delinquencies will climb from a low base as unemployment increases, it said. Dwelling prices in Australia rose 9.8 percent in 2013, according to the RP Data Rismark Home Value Index. (RPAUMED)

While there is expected to be less demand for mortgages in Japan after the government raises consumption taxes in April, home prices will remain stable on back of government policies such as expansion of tax deductions for mortgage borrowers, Fitch said.

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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