Fitch says London homes to become less affordable

LONDON — Residential property in London, popular with overseas investors including Singaporeans, will become less affordable over the next two years as increasing consumer confidence and foreign demand push prices higher, said Fitch Ratings in a report yesterday.

A 20 per cent increase in mortgage lending this year from 2013 will also see the average London home price-to-income ratio, already as much as 40 per cent above the United Kingdom average, climb further, Fitch said in its Global Housing and Mortgage Outlook report

Home prices will climb strongly throughout the UK and rise moderately in the United States and Australia, it said, all locations popular with well-heeled Singaporeans.

“Driven by an economic recovery and supporting policies, the next two years are likely to see growth in new gross lending in most countries,” the report said. In major global cities, it expects affordability to be stretched further this year, thereby increasing downside risk.

The UK government’s Help-to-Buy programme, which guarantees mortgages to those who can only afford a small down payment, last year led to the biggest increase in home values since 2006.

The Bank of England is closely monitoring housing prices and has the tools to take the heat out of the market if it gets out of control, the central bank’s Deputy Governor Andrew Bailey said last month. While the central bank is pleased Britain’s economy is showing signs of sustained growth, policymakers have to make sure the recovery does not rely too much on property and property-related consumption, he said.

Fitch warned in its report that a possible UK rate rise later this year remains a key risk for borrowers.

It also said mortgage rates in the US are expected to climb further as the Federal Reserve begins tapering its bond purchasing programme this month, and refinancing will be cut by as much as 50 per cent this year.

In Australia, affordability will worsen this year as increases in housing price outpace income growth, Fitch said. Mortgage delinquencies will climb as unemployment increases, it said. Dwelling prices in Australia surged 9.8 per cent last year, according to the RP Data-Rismark Home Value Index.

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