Britain’s housing market bubble is set to burst, with London’s property market showing signs of a slowdown. Housing market bubbles are driven by mortgage interest rates, affordability and market sentiment. A surge in buy-to-let landlords and foreign investors has contributed to the rise in property prices, leading to a bubble.
The current bubble is fuelled by record low interest rates, with the Bank of England base rate at 0.5% since 2009. Low interest rates have allowed for an increase in borrowing, causing a rise in house prices. The bubble is further inflated by the government’s Help to Buy scheme, which has increased demand without addressing the issue of supply.
London’s property market, which has seen significant growth, is now showing signs of a slowdown. This is due to a rise in property prices, making it unaffordable for many. The average London house price is now more than 16 times the average wage.
A housing market crash could have severe consequences, with a potential fall in house prices of up to 55%. This could lead to negative equity for many homeowners, causing a rise in repossessions and a fall in consumer spending. The last housing market crash in 2008 resulted in a severe recession, and the next crash could have similar effects.
The Bank of England has the power to prevent a crash by raising interest rates, but this could lead to a rise in mortgage defaults. Therefore, the future of Britain’s housing market remains uncertain.
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