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A professor from London School of Economics (LSE) has warned of a house price crash in Britain, predicting that prices may fall by up to 40 percent, increasing the risk of negative equity for many home owners.

The professor’s predictions are based on observations that a house price crash is more likely to occur when salaries are not rising as fast as inflation. As London property prices are starting to fall relative to the rest of the UK in a period of inflation rising faster than wages, and London is typically an early indicator for UK-wide house market trends, the professor is predicting another UK house price crash.

While this may be true to some extent, experience suggests that the Aberdeen property market tends to buck these trends or follow them later and with less impact. In any event, a number of factors driving the London property market will differ from the primary drivers in our local market.

The Aberdeen market has already adjusted following a period of significantly and rapidly rising house prices which were never going to be sustainable in the long term given that the rise outstripped salary increases – the point made by the LSE professor.

This adjustment came about as a result of a number of factors including global recession, the Independence Referendum, a General Election and changes to the Land and Building Transaction Tax (LBTT) and Additional Dwelling Supplement (ADS) but principally because of the challenges faced by the Oil and Gas sector which exerts a major influence on our local economy.

Statistics published in Spring 2017 indicated a fall of around 10% over the preceding year but, encouragingly, at Stronachs we have seen a significant increase in activity levels over the last quarter both in terms of sales and purchases.

Although it’s too early to make any reliable prediction, this increased activity leads me to believe that, while it may take some time to be reflected in official statistics and allowing for a degree of normal market fluctuation and seasonal adjustment, the market is entering a period of relative stability underpinned by increasing confidence levels and a realistic approach by both buyers and sellers – despite what’s being predicted south of the border.

Carol Crowther, Head of Residential Property

 

Chambers UK 2106

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