My son is renting a small ground floor flat -one bedroom, sitting room, kitchen and a bit of a garden - at the bottom end of the Fulham road for around £280 a week. It is in a two story Edwardian terrace house so -presumably - the landlord is getting an equally good rent - or perhaps a bit more as it is a two bedroom affair - for the one above. This would give him a gross rent of some £30,000 a year which equates to an open market value of this poxy house at around £500,000 (rent = 7% of value)
Given this exorbitant rent charge you will understand that I take a keen interest in the London property market - should I buy or should we continue to rent- it is the big question. Savills kindly sent me a copy of their Residential Property Focus and in it they forecast that London Prime (though surely arse end of Fulham cannot be 'Prime' - can it ? ) will rise by 23.8% over the next five years.
Well all I can say is that if Savills are right it is good bye to London as a commercial centre because the cost of housing will have driven everyone out of London. Going back to my son's flat. If he was to pay the rent without any help from me (or from a lodger who kips in the sitting room) he would need to be earning £40,000 a year. That is actually quite a good salary but after travel and rent it wouldn't give him much more than £200 a week to live on.
Over the last four years salaries in London have stagnated or fallen, the financial sector has shed buckets of jobs and bankers bonuses are increasingly a thing of the past yet London house prices are up some 20% on 2008 - it is a joke.
At the end of the day London prices will have to reflect the ability of those who live and work in the place to pay for them otherwise work and people will leave the metropolis for more salubrious fields. Yes I know foreigners are buying and keeping prices up but one day they will find that tenants strike and refuse to pay ridiculous rents. London property is a bubble and my forecast for the next five years is -in real terms after taking inflation into account - a drop in prices of 25%
So take your pick - Savills or Fulford - it's your choice.