Academics at Lancaster University say that the continuing surge in house prices will mean a property bubble by 2017. The last time this happened was at the end of 2007 and it was followed by a price crash when the bubble burst.
Prices in London grew by 11% in the last 12 months. With growth of 2.75% each quarter prices are heading towards what the researchers from the Management School at Lancaster University have called “exuberance’. A bubble of overpriced property will develop if this continues for 18 months.
In their UK Housing Observatory report they say that this could have a ripple effect across the country. And when the bubble bursts those who bought with big mortgages may be left in negative equity with the value of the loan higher than the value of the property.
The team at Lancaster uses a statistical analysis to draw up a ratio between property price and disposable income, which they say is now reaching a critical level. They use property price data from the Nationwide and the cost of living survey by the Office for National Statistics.
They say that tracking the ratio can give an early warning to policy makers.