MortgagesMay 8 2014

Heavyweight warnings as housing ‘bubble’ evidence mounts

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Heavyweight warnings over the sustainability of a perceived housing ‘bubble’ and the threat this poses to the wider economy have continued with three former chancellors, including George Osborne’s predecessor at number 11, urging a rethink of government stimulus measures.

FTAdviser sister publication the Financial Times reported that three former chancellors of the Exchequer - Lord Lawson, Lord Lamont and Alistair Darling – said the second phase of the scheme, which guarantees very high loan-to-value mortgages, has the “potential to inflate a future housing bubble”.

The second phase of the scheme, which opened early in October last year, guarantees a portion of mortgage losses for lenders that offer mortgages up to 95 per cent loan to value.

Fresh warnings come amid mounting evidence that the housing market is overheating, with data from the Royal Institution of Chartered Surveyors revealing that property sales are at a six-year high and the respected Halifax House Price Index showing an 8.5 per cent increase in April.

Annual house prices in the three months to April have shot up by 8.5 per cent year on year, meaning the average house price in the UK is now £177,648, data from Halifax has revealed.

However, house prices fell marginally on a monthly basis by 0.2 per cent in April. Halifax said this was the second successive monthly price fall and the third in the past six months, with the lender hinting at a reduction in mortgage approval volumes.

Rics also reiterated concern over the lack of ‘second-hand supply’ in the market, which many analysts state is the key reason for price inflation but which it claims could begin to act as a dampener to growth in the coming months.

Simon Rubinsohn, chief economist at Rics, said: “It is too early to conclude whether this will undermine the positive trend in transactions volumes, but clearly the absence of properties to buy will ultimately be a factor in influencing the ability of people to move homes.”

Three former chancellors of the exchequer have urged the chancellor to rethink his Help to Buy programme, following yesterday’s warning from a think-tank to scale back the mortgage support scheme.

The Organisation for Economic Co-operation and Development said in its latest report that Britain’s housing market, buoyed by record low interest rates and several government-backed subsidies for home buyers, was in “danger of over-heating without further action by ministers and regulators”.

Mr Osborne faces a growing cross-party consensus that “Help to Buy 2” should be scaled back, with Vince Cable, the Liberal Democrat business secretary, among those to have called on Mr Osborne to reconsider it because of a “raging housing boom”.

Last week, the Bank of England warned if the Mortgage Market Review fails to cool down the housing market, it will have to step in.

Mr Rubinsohn said: “Despite the disappointing trend in instructions, a net balance of 33 per cent of surveyors expect to see sales levels increase as we head into the summer.”

Stephen Noakes, Halifax’s mortgages director, said: “Although mortgage approvals have now declined for two consecutive months and property transactions fell in March, on an annual basis housing demand still remains strong.

“Housing demand continues to be supported by an economic recovery that is gathering pace, rising consumer confidence, low interest rates and wage growth finally beginning to outgrow consumer prices.

“However, with supply of properties being slow to respond to market conditions, stronger demand in the past year has resulted in upward pressure on house prices.”

Nicholas Ayre, managing director of buying agency Home Fusion, added: “‘The Mortgage Market Review is unlikely to be the reason for the slowdown as it has only recently been introduced.

“What we are seeing is a housing market that is jammed with homeowners refusing to sell up because they are worried about where they are going to live.

“Not only are transactional costs high - as well as the sticker price, you have stamp duty, various legal costs and stamp duty - there is also the stress and hassle factor. No wonder people are staying put.”