UK Housing Bubble: ‘Extremely Slim’ Risk

For those of you who don’t know what a ‘housing bubble’ is, fear not. You can find out for yourself here, or you could read on and we’ll tell you all you need to know.

In short, a housing bubble is a type of economic bubble that happens periodically in both local and global property markets. They’re generally identified by very large increases in valuations of property until they become unsustainable and then they decline just as quickly as they rose.

In the latest quarterly report from one of the country’s leading economic forecasters, the EY Item Club have said that Government schemes such as ‘Help to Buy’ will help to boost house prices by 3.5% this year and it’s also forecast that house prices will rise by 6.6% next year.

Concerned

Vince Cable, Business Secretary for the coalition is one of the people who is concerned about the effects of the ‘Help to Buy’ scheme.

Last month, he was quoted as saying that there were already “serious housing inflationary pressures” in certain parts of the country.

Not only was the Business Secretary concerned but in an interview with the Financial Times on Monday, the Chief Executive of Lloyds Banking Group, Antonio Horta-Osario expressed his concerns saying that new home building needed to be encouraged by easing planning restrictions so as to avoid a “substantial” increase in house prices.

“Well-Timed and Targeted”

The EY Item Club’s chief economic adviser, Peter Spencer, said that Government efforts to revive the mortgage market had been “well-timed and targeted”.

He went on to say: “Despite the recent criticism of these initiatives, the chances of seeing another housing market 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 much better shape, with debt to income ratios now at sustainable levels.”

The Help to Buy Scheme

With the second phase of the ‘Help to Buy’ scheme in place, borrowers can now put down a deposit as little as 5% of the property price. The Government provides a seven-year taxpayer guarantee to the lender covering 15% of the loan value and it’s available for properties that are sold for up to £600,000 in the UK.

The Item Club has forecast that investment in new housing will rise by 7.5% next year and an additional 10% in 2015.

This has also led to the Item Club raising their forecast for economic growth this year to 1.4% which is up from 1.1%. And next year it expects to see growth of 2.4% which, again is up from its previous forecast of 2.2%.

Conclusion

For those people out there who are making the most of this helping hand, they will undoubtedly be looking at making some changes to their property when they buy it.

Whether that be in the form of a new kitchen or new kitchen worktops or whether you add a brand new conservatory or orangery to the back of your house. Something like this is undoubtedly a good investment for the future of your property as it will undoubtedly add value to your home.

Don’t forget, if you do want a new conservatory or you have some questions you’d like to ask, don’t hesitate to get in touch with us.