Member Article

Inner London housing crisis brewing as buyers pay 25% premium for new build homes

The scale of the housing problem facing London has been underlined in a new report which has shown that some new build homes in the capital are being sold at a 25% premium over market value.

Residential investment advisors London Central Portfolio Ltd, who commissioned the report, found that in 2015 new build flats in Inner London sold for an average of £659,459 compared with £525,307 for older housing stock. A 25% increase on average.

According to LCP, such inflated prices will lead to increased volatility in the coming years, and represent a poorer investment than older housing stock in the long-term.

Commenting on the report, Naomi Heaton, Chief Executive Officer at LCP said: “Investors are paying a heavy premium for newness which, by implication, has built in ‘obsolescence’. At re-sale, units in big schemes which are essentially ‘commodities’ can only compete on price.

“They are also unlikely to appeal to the international buyer, the driver of the ‘new build’ market, once they are second hand. These factors make them far less resilient to market pressures such as a global financial crisis.

The added volatility may also harm first time buyers, such as those taking advantage of the new London Help to Buy scheme which launches in April, who could potentially be lumbered with homes that only depreciate in value.

Heaton continued: “The premium pricing of the new build market which tends to get eroded over time also causes major concerns for London’s first time buyers, being assisted into the market through the new London Help to Buy scheme.

“The marked lag in price growth could result in a bottleneck of first time buyers, unable to trade up, in the coming years. Not only could this have detrimental knock-on effects for normal churn in the property market but it may also impact the Exchequer’s balance sheet, as Government struggle to recoup their 40% loan on sale.”