London housing bubble is no longer sustainable, says Nationwide boss

Nationwide, the country’s second-largest mortgage lender, had a record first half with gross mortgage lending up 14 per cent to £14.9m

London’s housing market could level out at the top thanks to buy-to-let tax changes, says Graham Beale (Getty)

London’s ever-soaring house prices are unsustainable, the boss of Britain’s biggest building society warned yesterday.

Graham Beale, who steps down as chief executive of Nationwide next spring, said: “I am not saying there is going to be a crash but at the current rate of price rises fewer and fewer people will be able to afford to buy in London.

“Nationally, house prices have been rising by between 3 per cent and 4 per cent for a number of months and that is sustainable with wages going up by around 3 per cent. But in London we continue to see low double-digit rises, which does not look sustainable.”

He admitted parts of the market in the capital are still being driven by cash transactions, mainly from foreign buyers and buy-to-let purchasers. But he thinks tax changes to the buy-to-let market could start to take effect.

Mr Beale said: “We lend to people who are buying in Acacia Avenue not Park Lane but it’s in Park Lane that I suspect we could see the London market start to level out.”

Nationwide, the country’s second-largest mortgage lender, had a record first half with gross mortgage lending up 14 per cent to £14.9m. Underlying pre-tax profits rose by 27 per cent to £801m. This helped the balance sheet strengthen with the key core tier one ratio up from 19.8 per cent in April to 21.9 per cent at the end of September.

In a rarity since the financial crisis, it also reported no impairments, with modest writedowns on home lending being more than matched by writebacks on commercial lending.

Mr Beale said: “It’s surprising and not surprising. It is what I would expect from a building society because we don’t take risks. We don’t have the growth-driven model which HBOS turned into.”

He said yesterday’s report into the collapse of HBOS highlighted the importance of retaining mutuals such as Nationwide. He said: “That report cost £7m and took God knows what length of time to produce. Yet it doesn’t tell you anything you couldn’t surmise beforehand.

“If you look at the first half of the 1990s and all those building societies like Halifax… and Northern Rock, which demutualised and then collapsed in the financial crisis, I do wonder what might have happened to the economy if they had not converted. Mutuals really are different from banks.”

Mr Beale is still unhappy that the Chancellor, George Osborne, included his organisation in his 8 per cent bank profits surcharge tax in the summer Budget, calling it “a missed opportunity to support diversity in UK financial services”.