We all heard rumours that the UK property
market is again turning into a house price bubble waiting to burst. But is it
so? Let us examine this statement deeper.
It is a fact that there has been a surge in
mortgage lending today sparked by the government’s initiative Funding for
Lending and Help to Buy scheme (I). These are very correct measures aiming to
stimulate the property market and assist trapped tenants get onto the property
ladder. So much so that in Jan 2014 Help to Buy scheme (II) will be introduced,
assisting trapped home owners onto their second move.
Banks and building societies advanced home
loans worth £16.6 billion last month, up to 29% on last year and the biggest
rise for seven years.
The Council of Mortgage Lenders figures,
reveal lending is bouncing rapidly from the depressed levels of around
£10 billion to £13 billion a month seen since the banking crisis 5 years
ago. Last month’s total was the highest since October 2008.
Pessimists though, are warning that the
lending boom could simply “pour petrol” on a market already showing signs of
overheating and price more Londoners out of home ownership. They base their
worries on the fact that the London market has never really been in the
doldrums and therefore the danger here is that affordability of property prices
becomes ever more of a fantasy for more
and more people.
Government figures last month showed prices
rising at 8% to a record average £425,000 in June compared with 1% outside
London and the South-East.
The Treasury’s Funding for Lending scheme,
aimed at encouraging bank funding for home buyers and small businesses, and the
Help to Buy programme, which has already been taken up by 10,000 new home
owners, have contributed to the return of confidence. Borrowers were further
encouraged by the Bank of England’s Governor Mark Carney, assuring citizens
that its 0.5% lending rate is unlikely to be increased before 2016 and to be
more precise until unemployment level drops below 7% from the current 7.8%.
Fixed-rate mortgage deals although at historic
lows, started coming back into the market with some lenders offering fixed-rate
deals below 2%. There have even been the
first signs of the return of interest-only mortgages with lenders such as
Clydesdale and Yorkshire offering amazingly low lending rates for the first 3
years on some deals.
There are those of course who insist that the
London property market needs no further stimulus; it’s running too hot already.
Lending conditions are so favourable that some experts expected “double digit”
rises in property prices next year. This though could be the exception, mainly
due to foreign investors trusting and supporting the London property market
over the last 5 difficult years with over 37 billion pounds flowing into the
market from overseas.
Some journalists and government critics called
on George Osborne to scrap the second phase of its Help to Buy mortgage scheme
in London, due to come into force January the 1st. However, they seem to be
ignoring the Chancellor’s aim, which is to assist trapped first time home
owners to move onto their next property thus “freeing” other properties
suitable for first time buyers and therefore increasing in a sense the supply
of properties onto the First time buyers’ market.
The opposition rightly insists that unless the
Government invests in building homes, the country and the capital city in
particular badly need, rapidly rising
property prices will put the dream of home ownership beyond the grasp of millions
of Londoners. An increase in the supply of New properties is what the UK
desperately needs. The country needs around 235,000 new households per year,
but only around 100,000 are getting built. This alone creates a tremendous
shortage of homes, resulting in a major imbalance on supply and demand of homes
and therefore this is having a major effect on pushing property prices upwards.
An improvement in sentiment and activity
continues to show in the UK housing and mortgage markets, with a more positive
picture also beginning to emerge in the economy.
The Council of Mortgage Lenders, forward
estimate of gross mortgage lending in July, reinforces a growing evidence base
of a strengthening in the housing and mortgage markets. The CML’s members
account for 95 per cent of residential home loans in the UK. There are
11.3 million mortgages in the UK, with loans outstanding worth more than £1.2 trillion.
However, with many borrowers still effectively locked out of the market — such
as those with impaired credit ratings or negative equity — there is still a
long way to go until lending recovers to the peaks of £30 billion in 2006
and 2007.
Nevertheless leading property figures welcomed
the return to more “normal” conditions after so many barren years. RICS insist
“The mortgage market has been the pillar of the economic recovery. The freeze
on high loan to value mortgages has thawed, and first-time buyer lending is at
its highest since the banking crisis.”
Housing minister Mark Prisk said: “Latest
figures show our Funding for Lending Scheme, and Help to Buy schemes, and
record low interest rates, have led to the highest level of mortgage lending
since 2008. But alongside this, we’re also pulling out all the stops to get
Britain building, and the increased availability of mortgage finance is
boosting confidence in the housing market, and encouraging house builders. We’ve
also been working with the Mayor of London to invest billions of pounds to
deliver the fastest rate of affordable house building for two decades.
Property experts admit that low mortgage
rates, the Government’s Help to Buy scheme(s) and growing confidence about the
economy in general contributed to the increase in lending and consequently
property prices.
However is this not what we need? Movement in
the property market that will increase the supply of properties will free
trapped homeowners and assist first time
buyers in getting onto the property ladder?
Is it not vital to encourage builders and
property developers get back into the game, creating more jobs (14 new job per
unit built) reducing the government’s spending on benefits and increasing its
income through taxes?
This is the desired goal, is it not?
By
MARIO APOSTOLOU
Leading Property
Expert
09.09.2013
