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.
Or perhaps it will go up forever.