London property prices are ‘50% overvalued’, sparking fears of a correction Business

The London property market is overvalued by up to 50%, raising fears of an imminent correction, according to a leading global rating agency.

S&P Global Ratings, part of S&P Global, used long-term average property prices and compared them to income data for its calculations.

Alastair Bigley, a researcher for the agency, warned that prices were likely to fall.

“A combination of low rates, the stamp duty exemption and excess savings amid the pandemic has driven up house prices, particularly in London and the South East where the overvaluation over long-term earnings reached 50%,” he said.

“We expect a bigger house price correction in an overvalued market.”

Outside of London, S&P estimated real estate to be overvalued by 20%.

Mr Bigley said rising property prices were “a consistent trend” throughout the pandemic, which initially went unnoticed due to the disruption in the international economy. Prices have also risen sharply across Europe since the start of the pandemic.

The overvaluation did not necessarily affect owners, as higher prices gave them more equity and minimized defaults.

UK house prices hit a new high on Monday, jumping almost £6,000 in a single month amid a rush to buy before mortgage costs rise further.

According to property website Rightmove, the average home now costs £354,564, the first time asking prices have exceeded £350,000.

It came as owners raised their asking prices by an average of £5,760 or 1.7% in March, the biggest monthly increase in the spring since 2004.

Rightmove’s Tim Bannister said the market is expected to slow in the second half of the year as economic headwinds undermine consumer confidence.

“We’ve just seen interest rates rise again, and further increases are planned for the year, which will raise mortgage rates for some,” he said.

“Inflation and rising cost of living are also likely to affect buyer affordability and market sentiment.”