314% increase in Property Values in East Dulwich since the Millennium

East Dulwich house prices since the Millennium have risen by 314.94%, whilst average salaries in East Dulwich have only grown by 51.27% over the same time frame. This has served to push home ownership further out of reach for many East Dulwich residents, who face numerous challenges when it comes to purchasing property in the area. These challenges include the need to raise a sizable deposit and sterner lending criteria imposed by mortgage providers, following new regulations introduced in 2014/15.

Over the past 20 years, the East Dulwich private rental market has grown considerably. This is partially the result of buy-to-let investors purchasing the majority of new build properties in the area. Such properties had originally been built with the owner-occupier market in mind. For example, in the Dulwich and West Norwood Constituency, roll the clock back 20 years and there were 43,851 properties in the Constituency, whilst the most recent set of figures show there are 46,444 properties – a growth of 2,593 properties. However, anecdotal evidence suggests that a large majority of those 2,593 were bought by East Dulwich buy-to-let landlords, as over the same 20-year time frame, the number of rental properties has grown from 1,270 to 11,319 in the Constituency – a rise of 10,049 properties.

Nevertheless, some commentators are now speculating that the historic growth of the East Dulwich rental market might start to change as a result of the new tax rules for landlords, introduced by Mr. Osborne over the last seven or eight months. Interestingly, the numbers tell another story. In March 2016, nationwide mortgage borrowing reached a 9 year high. This can be partially explained as the traditional Easter rush of the British property market was replaced in 2016 by the rush to buy property before the arrival of George’s Osborne’s new stamp duty changes. In March 2016, buy-to-let landlords borrowed £7.1bn, according to the most recent figures. These figures are 163% up on the £2.7bn borrowed in the previous March.

Personally, I think things are unlikely to get worse in the buy-to-let market in East Dulwich, here are the reasons why:

Firstly, what else are East Dulwich landlords going to invest in if it isn’t property? Some might argue that the stock market provides comparable returns to property. However, since the Millennium, the FTSE 100 has risen by an unimpressive total of 15.7%, quite different to the 314.94% rise in East Dulwich property prices. Just to put this into context, inflation over this period using the Retail Price Index was 56.7%.
Secondly, there can be no doubt that over the next few years, a variety of tax changes are to be phased in, which may have an impact on the ability of landlords to purchase property. We have already seen the 3% stamp duty introduced in 2016. Other changes to follow between 2017 and 2021, include a constraint on landlord’s ability to offset mortgage interest. If these changes lead to sizeable numbers of landlords taking the decision to sell their portfolios, then this will lead to a substantial amount of second-hand properties being put up for sale. If this were to happen, it might not be a bad thing. As I have mentioned in previous articles, there is a serious shortage of properties to buy at the moment in East Dulwich, with the stock of sale property being at a six-year all time low.
Thirdly, if there are a smaller number of rental properties in East Dulwich, as supply drops and demand remains the same, this will create a squeeze in the East Dulwich rental market and as a result, rents will rise. I should caveat this statement by mentioning that it is unlikely to be the case that demand remains the same – ask any letting agent in East Dulwich and they will say demand is continually rising in the area. On this basis, I predict that even if landlords don’t sell up, East Dulwich rents will rise as East Dulwich landlords seek to compensate for increased costs, which means more landlords will be attracted back.