Opinion split over possibility of housing bubble
14/10/2013
Opinion on whether the new Government-led scheme to get more people on the property ladder, Help to Buy, will cause a housing bubble has been split, as industry experts consider the likelihood of a rise in property prices.
Head of Lloyds Banking Group, Antònio Horta-Osòrio, has expressed his concern over the scheme, saying that unless the Government removes restrictions over planning, and boosts the supply of housing, there is a risk that prices could begin to rise fast. In an interview with the Financial Times, Mr Horta-Osòrio said: “It is important that planning permits, building authorisations and social housing projects are (liberalised) so that the increase in (mortgage) transactions does not lead to a substantial increase in house prices”.
However, EY Item Club, one of the leading UK economic forecasters, has said that there is only an ‘extremely slim’ chance that we will see a housing bubble as a result of increased activity within the mortgage market.
EY Item Club predicts that the price of the average UK home will rise by 3.5pc this year, and then a further 6.6pc next year.
A housing bubble would be caused as a result of demand outstripping supply, as more and more people are able to afford to buy a home. Once this happens, the prices of houses on the market would be raised to reflect the increased level of competition, and there would be a situation where only the richest could afford to buy a home, effectively rendering the scheme useless.
However Peter Spencer, chief economic adviser at the EY Item Club, dismissed fears of a bubble occurring. He said: “Despite the recent criticism of these initiatives (Help to Buy, Funding for Lending), the chances of seeing another housing bubble are extremely slim.
“House prices and transactions are only just recovering from the credit crunch and will be paltry in comparison to those of a decade ago. Household finances are also in a much better shape, with debt to income ratios now at sustainable levels”, he continued.
Need advice?
If you need advice on buying a property, please speak to one of our whole of market mortgage advisors who will be able to help you.
Share this..
Related stories
Mortgage Interest Rates
Every lender will charge you interest when you take out a mortgage loan with them. The interest is effectively what you are being charged for the service of lending you the money you need to buy your house. However, different lenders will charge different rates of interest aimed at different parts of the market.
As well as these different rates of interest, there are also many different...
Read MoreShould you be looking towards a fixed rate mortgage?
Over the last few months we have seen competition increase in the UK mortgage market which has led to a number of standard variable mortgage rates falling to very attractive levels. This has also impacted upon fixed rate mortgages which have also fallen over the last few months. So is it now the time to look towards switching from a standard variable rate mortgage to a fixed-rate mortgage? Even...
Read MoreOh no, mortgage-backed bonds return
Lloyds bank has today announced the issue of £3 billion of mortgage-backed bonds which have been lifted from the HBOS loan book and used to raise funds in the money markets. Those who are aware of mortgage-backed bonds will be cautious to say the least as many people believe these particular investments led to the downfall of the worldwide economy nearly 2 years ago. So what has changed?
<...
Halifax Reduces Mortgage Rates Again
Whatever is the mortgage market coming to when Halifax pushes through its second rate reduction in less than a week!
The group's two year tracker mortgage rate has fallen from 5.69% to 5.59% but it is the two year fixed rate mortgage which is grabbing the headlines, falling from 6.19% to 5.84%. There has also been some reduction in the variable rate mortgage and this area of the ma...
Rent-a-room mortgage earns buyers £4,250
Buyers expecting to take on a lodger can now benefit from a new mortgage, which can effectively earn them up to £4,250 in rent totally tax-free.The rent-a-room mortgage has been launched by provider John Charcol and takes into account the fact that government legislation allows people to earn £4,250 from rental income without being taxed on it. John Charcol acts on the proviso that this income i...
Read More