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Property market to be boosted by City bonuses

13th January 2006 | back to article listings BACK    print this article PRINT

The London property market is likely to receive a huge boost in the coming months with City bankers looking to spend a good chunk of the £7.5 billion that is being paid out in bonuses.

A report from the Centre for Economics and Business Research (CEBR) reports that this figure is up from the £6.4 billion that was paid out last season and suggests that property investment will eventually account for around half of the money.

Pumped into the higher end of the London property market, this £4 billion will lead to a rise in the house prices in some of London's most exclusive locations, but it will also feed into the London property market as a whole, according to the CEBR. Halifax has claimed that the market rose by 6.7 per cent in 2005, but record bonuses this year could lead to significantly larger growth during the course of the year.

The average bonus this year will be in the region of £23,000 although 3,000 bankers are looking forward to bonuses in excess of £1 million. Although some of the money will be spent on plastic surgery, cars and retail, property investment has always been the most popular area for City bankers looking to reap the rewards of their successes and this year will be no different.

The link between City bonuses and the London property market has in fact been shown to be extremely tight.

The Telegraph recalls that when the bonus tap was switched off in 2001, the top end of the property market saw a very clear slump.

Conversely, many bankers chose to invest their riches in property between 1999 and 2001 because the stock market was seen to be wobbling. Predictably, house prices soared in the period with average prices in Kensington and Chelsea rising from £304,456 to £567,952. A similar thing happened in Westminster as prices shot up from £248,375 to £404,086. Estate agents are now getting extremely excited that the same thing is about to happen again while property investors in the area are looking to make huge returns.

Speaking to the Telegraph in October last year, Ed Mead of Douglas & Gordon in Chelsea, said that the impact on the housing market of City bankers with bonuses can be extraordinary.

"Their influence on sentiment in the property market is out of all proportion to their money. It is City people with their bonuses who create the excitement in this job. They are fun. It is only a City boy who can walk into a flat and say straight away 'yup, I'll have it'," he said.

It is not only London's property market that is boosted by bonuses, with Peter Lyell of the Edinburgh office of Savills acknowledging last month that demand for Edinburgh property is generally given a hefty shove during the bonus season as well.

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