A penthouse at a luxury apartment block in London is sold for a British record of £140m. Is this more evidence of an unwelcome housing bubble?
The penthouse, at One Hyde Park in Knightsbridge, has been bought by an east European, thought to be a Russian or Ukrainian, according to the Times.
The interior has not been finished yet, and the developer, CPC, says it has been advised that the duplex apartment could fetch up to £175m when the work is completed.
Its sale coincides with a warning from Sir Jon Cunliffe, one of the Bank of England’s deputy governors, that rising house prices pose the biggest threat to Britain’s financial stability.
Sir Jon said the bank monitors several “blinking warning lights” which indicate the level of risk to the country, but the growing momentum in the housing market “is now, in my view, the brightest light on that dashboard”.
He said there was a danger of “a major overshoot in prices and a build up in debt followed by a sharp correction with negative equity and an overhang of debt for many households”, adding: “Unfortunately, there are more precedents in the UK for periods of a rapidly growing housing market to end in this way.”
House prices have risen by 11 per cent in the last year to reach an average of £183,000, according to Nationwide, while Halifax predicts a further increase of up to 8 per cent by the end of 2014.
So does the record sale at One Hyde Park have any implications for the rest of the UK? Not according to Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors.
He told Channel 4 News: “In truth, one purchaser coming in and splashing this sort of money is not that relevant for the wider property market.
“This is a small but high-profile segment of the residential property market. If this were to be followed by an influx of big purchasers, it is conceivable it could have a knock-on effect, but it’s a very segmented part of the market.
“I don’t think this big number on its own is that relevant for the wider property market or for that matter the economy. What goes on at the very top end of the London market has only a tangential link to what is going on in other parts of the country.”
Steve Turner, a spokesman for the the Home Builders’ Federation, whose members construct 80 per cent of private homes in England and Wales, agrees.
He told Channel 4 News: “I think London full stop is a market in itself and central London is a market in itself. I don’t think it’s a reflection of house prices across the country at all. London has always been a very separate market, especially central London, to the rest of the country.”
Mr Rubinsohn said the housing market was picking up across the UK, but this was due to the improving economy rather than the London effect. The biggest problem in the market was lack of supply, he said.
So why are there not enough new homes being built? Mr Turner believes the government’s help to buy scheme for new homes has made a difference, with an “increase of 25-30 per cent in house-building activity” and “the vast majority of sales outside London”.
He argues that builders want to build, but can only do so if land is made available to them and planning permission granted for development. The irony is that while house builders laud help to buy, others claim it is contributing to inflationary pressures in the housing market.
This is an argument rejected by Chancellor George Osborne, who also says that those talking about bubbles need to dintinguish between what is happening in the most expensive parts of London and the rest of the UK.
There has been action to take some of the heat out of this market. The funding for lending scheme is no longer available for home buyers, and the mortgage market review, which is kicking in at the moment, is likely to make loans more difficult to obtain.
Under the terms of the Financial Conduct Authority’s review, lenders have to apply “stress tests” to make sure mortgage applicants can afford to repay their loans in the future when interest rates rise.
After the progress made in widening access to home loans through the funding for lending and help to buy schemes, the government will not want its plans to extend Britain’s “property-owning democracy” blown off course, even if the FCA’s aims are laudable.