A recent survey found that 48% of respondents believed that the London property market was becoming unhealthily overheated compared to 41% who didn’t.
However, when asked if they could foresee London prices taking a substantial (20%) drop within the next three years the majority of respondents (69%) said no.
Noel Meredith, executive director of United Trust Bank, said: “Much of the speculation of a house price bubble has been generated by the price rises seen in the Capital.
“July’s Land Registry data indicated that London house prices had increased by 19.3% in the previous 12 months, the highest annual increase for a decade. Some areas of London, such as Lambeth, had seen increases of nearly 30%.
“The Nationwide’s recent house price index indicates that whilst national and London house prices have continued to climb, activity in the market was cooling down.
“The possibility of an interest rate increase and tougher mortgage application rules could be important factors as to why mortgage approvals fell by 20% between January and May this year.
“However, the market ‘cooling’ isn’t necessarily the prelude to a house price crash or indeed a London bubble bursting. There is still a huge demand for property in London and an undersupply of new housing. Whilst that situation remains, a serious drop in prices looks highly unlikely.
“What most people in property agree is that in order to bring about property market stability we need to build a lot more homes.
“Although builders are increasing activity and new home starts are rising, we need to build in excess of 200,000 new homes a year for the next 20 years to tackle the inherent problem.
“To do that developers will need backing from flexible, experienced lenders who understand the market and have a desire to fund diverse and interesting projects.”