There’s been a lot of recent news about UK house prices popping some 10% in the last year. This seems insane, especially given shocking about of government housing market manipulation at the moment. Most egrigiously:
Equity Loan (In London) they’ll mint a quarter of a million quid for free to anyone who wants a new property.
Mortgage Guarantee: People with a mere 5% can get a substantial mortgage (note; that’s subprime!); the bank has very little at risk, and so will lend to many more than if they were evaluating risk against their own books.
Interest Rates are near zero, allowing more borrowing and pushing up the cost of housing.
Stamp Duty Holiday: This has the effect of bringing forward future purchases as people rush to beat the deadline and save a few (thousand) quid.
HTB / Lifetime ISA: Yet more fuel for the fire.
To me it seems that there’s a very significant chance of a lot of people losing their shirts, especially FTBs who just bought in. A destabilisation in interest rates would rinse the market out completely. The Bank of England are calling the inflation they are seeing - the same as the Fed - “temporary”. But it might not be, and if it isn’t then interest rates are going up, up, up. The stamp duty holiday has brought forward a lot of purchases, and there will be a definitional resultant depression in demand after stamp duty returns. This could coincide with an increase in interest rates to stabilise inflation. Add to this the many people trapped because of bad cladding, trapped because the market has gone up and their equity loan means that the government take a lot of the upside (could be 40% in London), and finally the fact that the housing market is notoriously illiquid with housing changing hands so infrequently (on average), that it doesn’t take a lot of lowball sales to reset the prices across the market.
Policy makers have been quite clear they are happy to tolerate inflation above the 2% target for some time, because inflation has been so low for so long. I wouldn’t be certain interest rates will be rising significantly for some time yet.
Except they have to say that, otherwise the market would react both immediately, and violently. So them saying it may or may not mean that they mean it.
Do you seriously think there will be a big rise in the base in the short to medium term? Inflation targeting is not the only priority of the Bank of England.
I can see small rises of 0.25% at MPC meetings if the economic recovery is strong and there’s a serious risk of inflation running at say, more than 5%, beyond this transitory period, but I think the likelihood of interest rates going “up, up, up” is fairly slim out to mid term.
It follows an 18 year cycle the next crash is due around 2026. Given the mortgage market has tightened up significantly I can’t see it having a massive impact
A major house price crash has been religiously predicted every year for the last ten years or so. I guess one year this has to be right, I’d give it a couple more years though.
Right now sentiment seems good, things are moving quickly again, and banks have money to lend. Could be wrong though, the market is fundamentally unpredictable.
There are indeed many reasons why house prices might be a bubble, but the government is clearly willing to go to great lengths to “support” the sector.
There are still people on furlough and evicts have been frozen, so there is potential for unrest in the market. Having said that, some of the recent changes in the market - ie the new love of outdoor space - might be a permanent change that’s driven demand rather than a bubble.
I don’t think it will. It’d likely coincide with higher interest rates and reduced lending - acquiring a first time buyers mortgage is somewhere between very difficult and impossible during a crash. Historically, house price crashes have always stopped the majority of first time purchasers.
Then prices go back up again accordingly. Or the end of the stamp duty freeze means its still unffordable. Or the interest rates are higher, meaning the mortgage payments end up the same anyway, or…
Think if it this way, if it was just as easy to buy properties as it is now then prices would be the same as they are now. The idea some big event is going to come along and let everyone jump on the property ladder… not really how it works unfortunately, nice as it would be.
Honestly, with a stamp duty freeze and record low interest rates seemingly permanent, lots of HTB schemes, 95% mortgages, it seems like the last five years have been a great time to buy a house to me. Outside of London and certain areas in the South East, prices are also affordable. I’m not really sure what people have been waiting for, but I think it’s an event that’s never going to come.
