House prices to earnings ratio are set to drop across central London as a result of the introduction of the new stamp duty, but could there be other explanations? The short answer is “yes”; partially London has begun seeing wage inflation again as the UK and more specifically the London economies pick up. More specifically however prime central London is seeing such drastic drops in P/E ratios as a result of a specific change to investment bankers’ remuneration. Investment bankers in 2014 (who coincidentally also tend to inhabit the prime areas) saw some of the highest wage inflations out of any job category. Some employees could have seen there salaries double as a result of recently introduced limitations on bonuses which led to the introduction of “role base remuneration” (in effect an offset against the cap on bonuses).
As a result, not only are property prices at the high end of the market stagnating but and increase in salaries has further lowered the PE ratios, providing some much needed relief in a market which had become increasingly unaffordable for its inhabitants. But with Kensington and Chelsea still hovering at a stagering 27x average yearly salaries, it leads one to wonder how an employed could pay down his/her mortgage in such an environment.