My girlfriend is a lawyer for a large city law firm. You can check on rollonfriday how much such lawyers get paid. She cannot get a large enough mortgage to afford even a 2 bedroom flat in a reasonable area (Richmond, Putney, Clapham). If she cannot afford a flat, then I fail to see how those who earn the average London salary can - the situation is completely unsustainable. From the open days, it seems that couples with a large deposit from the bank of mum and dad are the ones able to get enough credit. I'd like to see how they manage as interest rates increase.
Of course the situation is very complicated though:
1) There's a c120,000 shortfall each year between the number of houses built and the number of households formed in the UK, and this has been true for nearly 20 years now. I don't know what the London situation is like, but imagine it to be similar or worse.
2) The government has introduced help to buy, allowing people who shouldn't be getting £400k mortgages to get them.
3) London population growth. If 1) stays true then there might be enough demand from rich foreigners to keep bidding the prices up, or sustain them.
4) The cost of many peoples mortgages is > 50% of salary.
5) House prices in London are 8x average salary, and average prices are now significantly higher than before the great recession, a point in time in which everyone universally agreed there was a real-estate bubble.
So, given all of the above, I think there will be a house price crash if:
1) A UK Government grows some testicles and starts building homes, hopefully in conjunction with scrapping help to buy (they of course won't do that because the people who vote for them, the 50+ age group, have most to lose from a property market devaluation).
2) Interests rates increase significantly.
3) London population growth slows.
I have no idea when and if any of that will happen, but it is certainly
possible that London house prices will crash, which is not what most people paying outrageous prices for property in London think. "It's London! It will never crash!" - they seem to have forgotten even 5 years ago.
At the moment, we are going to rent, since you can get a nice place for £1200 pcm which is less than the interest charged on a mortgage for even a terrible property to pay the current inflated prices.