HNW hostages

There's a lot of talk at the moment about the London property market being disconnected from any kind of economic reality.

Average prices in London, I read a week or so ago, are now over £400,000. The air really is quite thin in the capital.

And it's going to get even thinner if you believe Ernst & Young. The economic forecaster said this week that it expects average prices in the capital to reach £600,000 by 2018.

If prices keep rising at their current level then that certainly seems possible. Crazy, but possible.

However, a growing number of people suspect that things might start to unravel in the capital.

They have given a number of arguments why: the UK economy isn't as robust as we think; the arrival of the Mortgage Market Review will see criteria tighten; households still haven't deleveraged sufficiently and are already overstretching themselves.

But another reason has been given and it's one that I have seen far less of. It's that the main threat to the London property market is actually unfolding across the pond: the US Federal Reserve's ongoing taper on bond buying.

Despite the fact that everyone knew it was coming (it had to happen, after all), the trimming of bond buying by the Fed (to the tune of $10 billion a month) is already impacting global stockmarkets and has triggered volatility across most major indices.

In short, it's affecting peoples’ wealth, especially the wealth of higher net worth individuals, which is often tied up in the markets.

But the wealth of higher net worth individuals and the super-rich isn't just tied up in the markets. It's also tied up in prime and super-prime London property.

Of course, when the wealth of these people is affected, it can make them slightly less confident just like it does the rest of us mortals. It can also lead them to dispose of assets in order to create liquidity, i.e. hard cash.

In short, if the markets continue to suffer then there may be a sell-off of prime London property, and this would ripple down through the rest of the market.

It’s just another theory, of course, but it’s still one that’s worth having on the radar.