Housing bubble fears grow ahead of new data

Governor of the Bank of England, Mark Carney. Picture: Getty

The Bank of England governor has pledged to keep a close eye on the property market amid signs that prices may be overheating in some parts of the country, particularly London and the south-east of England.

Analysts fear that government initiatives which helped kickstart a recession-ravaged housing market could cause it to spiral out of control again.

Support for households from the central bank and Treasury’s Funding for Lending Scheme (FLS) is due to end next month as the emphasis is switched to helping struggling businesses. However, opinion is divided as to whether that will act as a brake on the housing market.

With price rises in some areas easily outstripping inflation and wage growth virtually non-existent, first-time buyers could find themselves squeezed out of the market even more.

Despite this, figures due out next Friday are expected to show a further jump in mortgage approvals. The Bank of England data is tipped to reveal approvals for house purchases climbing to a 71-month high of 70,000 during November. That would compare with a 2013-low of just over 52,000, recorded in February.

The British Bankers’ Association has already released figures showing there was no seasonal slowdown in the mortgage market.

Meanwhile, housing reports from both Halifax and Nationwide – due over the coming week or so – are likely to show a substantial firming in prices and point to average year-on-year gains of more than 7 per cent.

Howard Archer, chief UK and European economist at IHS Global Insight, said yesterday: “While concern over the strength of house price rises has been primarily focused on London, it is evident that the strength in house prices is becoming more widespread amid strengthening market activity across regions.

“There is a very real risk that house prices could really take off over the coming months, especially if already significantly improving housing market activity and rising buyer interest is lifted appreciably further by the Help to Buy mortgage guarantee scheme which was launched in October.

“Consequently, the decision to end Funding for Lending support for lending to households from January looks a highly sensible decision, although in itself it is unlikely to act as a major brake on housing market  activity.”

He said it was important that central bank policymakers had indicated that they were prepared to take further action to rein in the housing market if prices rise markedly amid ongoing strengthening activity.

In its 2014 forecast, Halifax claimed there were no signs of a house price bubble emerging in the UK despite the above-inflation rises in the past year.

It noted that house prices were also lower in relation to earnings with the average price currently 4.8 times typical annual earnings – compared with a high of 5.8 in 2007 and a long-term average of four times earnings over the past three decades.