Don’t count on the Russians to keep buying houses

The oligarchs are back. Eager to snap up bargains, cash-rich buyers from the likes of Russia and the Arab States have been prowling British streets, taking out loans and bidding up the price of property. According to the Council of Mortgage Lenders, mortgage lending for house purchases was 19% higher in July than the same month last year.

But don’t count on house prices to keep rising, as they have done over the past three months. The recent bounce has been mainly driven by cash-rich buyers chasing limited supplies of new homes. On the demand side, you have wealthy foreign buyers taking advantage of the weak pound, and domestic buyers who’ve already saved up big deposits (such as those who sold to rent before the bust) who have been pushed into the property market by the poor returns they’re getting on cash. On the supply side, low interest rates have meant there are few forced sellers, so the number of homes hitting the market has fallen sharply.

But this can’t last. As Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club tells the Daily Mail, the supply of funds from foreign investors is limited. And once that flow of cash-rich buyers dries up, it’ll be up to ordinary cash-poor buyers to keep a floor under house prices. And with banks requesting deposits of 25% from first-time buyers, there’s very little chance of that. Which is why “prices are likely to dip again in the first half of next year,” says Mehta.