There is also some evidence to suggest that the increase in house prices may not continue at the same pace, and that much of the expectation around the Help to Buy scheme may have already been factored into current prices.
The latest credit report from the Bank of England showed that mortgage approvals for new home purchases rose in September from 63,400 to 66,700; however, approvals are still far from the pre-recession peak of 129,000 in 2006. In addition, the speed of increase in approvals looks relatively modest compared to the surge in new buyer inquiries illustrated in the Royal Institute of Chartered Surveyors survey, while agreed sales, as measured by Rics, dipped in October.
A bubble would suggest that things have become unaffordable, yet affordability measures are mixed. Mortgages are not expensive and the Halifax mortgage-to-earnings ratio is well below its long-term average, suggesting homes are very affordable, if only for those who have the deposit handy.
Measures
However, other measures of affordability are less buyer-friendly. For example, the house price-to-earnings ratio suggests that the average home price is equivalent to 4.7 years of earnings, compared to a long-term average of 4 years.
The artificially low interest rates and schemes from the BoE and the government have helped lower mortgage rates and improve access for house hunters. But as interest rates can only go one way from here, the question is whether home buyers have stretched themselves to get on the property ladder and what happens when mortgages are no longer cheap.
The biggest concern in the housing market is not whether prices are rising and whether a bubble is being created, but whether new homeowners will be able to meet their rising mortgage repayments when interest rates do begin to rise.
Kerry Craig is global market strategist for JP Morgan Asset Management
