UK House Price Growth Rising Out of Control According to European Commission
The economic fear is that the growth and rise of prices is unsustainable, and could cause the housing bubble to burst.
What the Industry Experts say
In a recent article, the European Commission has called for more control over the British property boom, as house prices threaten to spiral out of control.
They recommend that the country must focus on building more affordable property and reform its council tax system, if there is ever going to be any chance of controlling the market.
The Commission also warned that the UK demand was outstripping supply, causing prices to rise exponentially.
And it’s not just the European Commission that is starting to get apprehensive. The IMF also commented that the recent property boom is ostracizing many people that simply cannot afford to buy.
“House prices are rising because demand outstrips supply,” the IMF report states. “The UK has a secular problem with inadequate housing supply, associated with planning restrictions and compounded by depressed housing starts since the financial crisis.”
Schemes have been brought in to try and make housing more affordable. Help to Buy, the government’s flagship property scheme, seemed like a good venture when it was first introduced.
However, it has unintentionally highlighted the underlying issues that have plagued the property market for years – an increasing demand and a lack of new builds, means that prices are driven through the roof with very few people being able to take their first steps onto the property ladder.
Even Goldman Sacs have waded into the argument, with their newly release Goldman report claiming that; “one possible reason for the rise in rents in the lack of new construction since the beginning of the recession.”
The report went on to say “The vacancy rate – especially on rental units – has an economically and statistically significant effect on local rent inflation.”
Is there still chance for growth?
Despite these warnings, it’s not all bad news. Areas with high level of London investment property, like Nine Elms and Vauxhall, are already benefiting from the rise in house prices.
These locations are to become part of the largest regeneration scheme in Europe. Sitting upon the south bank of the Thames, Nine Elms is a relatively industrialised area that is close enough to London central to be snapped up once the area is turned residential.
This reflects the comments in the aforementioned IMF report, which states “The government has introduced major changes to the planning system to creative incentives for local councils to increase available land for housing development, and there are some signs of recovery in housing construction.”
The £500million refurbishment of the station at London Bridge, and other infrastructure changes like the extension of the Northern Line to Battersea, will also rejuvenate the area, and all signs point to a potentially positive future uplift.
There has been further good news for London property zones such as the area between London Bridge, Bermondsey and Borough - Apartments for Sale in SE1 London have received a boost by the iconic development of The Shard Tower.
Bermondsey has even caught the eye of property mogul the Duke of Westminster. His company, Grosvendor Group, recently invested £17million on a site in the area, after selling off properties in Belgravia worth £240million.
So even with the house prices at a ten year high in the south of England, there is a silver lining. The demand is through the roof, meaning the value of any and all property in the general vicinity of the Capital grows on a daily basis.
Grosvenor Group Chief Executive, Mark Preston, said; “There’s a midmarket professional cohort of people who live and work in London and are priced out of the market when it comes to buying and are therefore looking to rent – but there is not enough supply to satisfy that demand. We are developing at scale which is not possible in the West End where land values are not viable.”
Bank of England Course of Action
The European Commission says that decisive action must be taken soon, in order to prevent the real estate industry from getting out of control.
In order to curb housing market growth, they recommend that the raising of interest rates will allow the housing boom to cool, after the figure has hovered at the target of around 2% for some time now.
With house prices rising at over 10% a year, and economic stabilisation well under way, the Bank is feeling more pressured to raise interest rates.
However, this move could derail an already delicate economy, stagnate the housing market, and the country could stop showing such bright signs of recovery.
During the Bank of England’s Financial Policy Committee (FPC), meeting on the 26th June, the BoE have announced a possible Affordability Check on all households applying for mortgages from October 2014.
They recommend that no more than 15% of mortgages issued will be allowed to exceed 4.5 times that of a household’s loan-to-income. The FPC also want mortgage applicants to be checked to ensure that they will be able to afford a 3% rise in interest rates.
Despite today’s UK real estate market being particularly competitive, there are still plenty of opportunities for development available – you just need to be able to see them.
London Investment Property is still a good investment as long as investors purchase in high growth areas,” says Investment director, Arran Kerkvliet, of One Touch Property Investment. “Areas like Knightsbridge and Chelsea have peaked, but the best investors have imagination and the ability to see opportunity ahead of others.”
One Touch Property Investment
0203 638 5035