But now, the party’s over. With the oil price in freefall, there’s a lot less money to go around. Moreover, in an effort to stop the Russian economy from collapsing, Putin is trying to get the Russian super-rich to bring their money back home, using a mix of sticks and carrots. Meanwhile, sanctions have also made Britain – like the rest of the West – less of a safe haven for money from wealthy Russians.

More generally, an increasing sense of resentment and popular uproar about ‘ghost towns’ – areas of London entirely dominated by second homes – is adding to pressure to tax wealthy and foreign property owners more heavily. Depending on the election result in May, a ‘mansion tax’ may even be introduced.

As a result, many potential overseas buyers are no doubt thinking twice about owning property in the capital – even if they can still afford it.

Another more recent big move is also likely to put pressure on London property – the European Central Bank’s (ECB) decision to launch quantitative easing (QE) last week.

As my colleague John Stepek points out, this will hit the value of the euro. The single currency has already fallen hard against sterling. But Nicholas Gartside of JP Morgan’s Strategic Bond Fund thinks it could fall by another 10%.

That makes London property more expensive for eurozone buyers. Perhaps more importantly, the fact that the ECB has started printing money is likely to reassure jittery investors. Any sign of a wider recovery could see money start to flow out of London and back into cheap eurozone assets.

How far could prices fall?

So what happens next? Interest rates look set to stay low for now. And whoever wins the election will remain under pressure to keep prices high. The housing market in the UK is seen as ‘too big to fail’ by most people.

So for now the consensus is that UK house prices will stay roughly where they are – remaining broadly flat in London, and rising a bit outside London. In fact now could be a good time to downsize from capital to country, if that’s on your ‘to do’ list.

But this notion of flat prices could be rather too cosy a view. Markets – particularly grossly overvalued ones – rarely just flatline. They tend to overshoot on the upside and then undershoot to the downside once they lose momentum.

Demographics expert Paul Hodges reckons that prices could (and perhaps even should) fall by a lot more – as much as 50%.

About The Author admin