The UK housing market was subject to robust growth during the last year, despite starting 2006 at record high levels. According to Nationwide’s latest House price review, stronger house price growth has pushed the annual rate of house price inflation to 9.3% for the fourth quarter of 2006. This represents an increase of £40 per day.
Research from Halifax revealed that for the first time, the prices for first time buyers have reached above the £150,000 threshold. The average price increased by 11% in 2006 to £151,565 from £137,122 in 2005. Over the past five years the average house price paid by first time buyers has almost doubled, rising by 95% from £77,914 in 2001.
The Royal Institution of Chartered Surveyors (RICS) has estimated that house prices are to rise by around 7% in 2007, following a 9% jump in 2006.
It is due to a short supply and a continuing demand for property, especially in the London region, that has caused house prices to remain unseasonably high. After 12 months which have seen prices rise by 9.7 per cent, the average house is now valued at £198,147, according to the latest Assetz house price watch. This demand illustrates the notion that the housing market will remain strong, at least for the earlier part of 2007.
David Dooks, the British Bankers' Association (BBA) director of statistics, suggested that the robust demand and its subsequent affect that this will have on house prices is likely to hit home-owners and home-buyers in other ways - "Monthly spending on credit cards and the value of new personal loans taken out have been generally lower in 2006 than in the previous couple of years, while repayment levels have been maintained" he stated.
The slow growth of credit card borrowing suggests that most people are finding it increasingly hard to manage affordability issues, but are continuing to direct their spending towards home ownership.
There are many issues that are generating higher house prices: in the UK there are simply not enough properties to meet the increased demand that has been maintained over the last few years. This is exacerbated due to the fact that there are not enough new houses are being built each year, pushing up the price of existing ones. To combat this, the Department of Communities and Local Government (DCLG) has announced that it plans to build 200,000 homes each year to meet demand over the next decade.
A key factor in the housing market is the ability of first-time buyers to buy into the property market, and the government has realised the importance that building more affordable homes will have in rebalancing the current position of the property market.
The 11th January saw the Bank of England raise interest rates a further 25 base points, to 5.25%. This was seen as a surprise move, many news sources expected the rates to be maintained at 5%, due to increasing house prices. The move will come as a further blow for households, many of whom are already struggling to meet their monthly mortgage payments and other bills. It is likely that this rise will further add to the increasing gap between what people actually earn and can afford to pay for property and the current asking prices of properties in the UK.
The Bank of England’s decision has been based on a target to tackle the rate of inflation. Currently, the inflation figure is at 2.7%, which is higher than the desired level of 2%.
After the rise in interest rates, RICS warned that if interest rates were to rise further, then the amount of repossessions is very likely to increase. According to RICS, just over 8,000 properties were seized by lenders in the first half of last year.
According to Nationwide, consumers seem to have a gloomy view of the outlook for the economy and jobs in the next six months. Nationwide’s Consumer Confidence Index illustrates that consumers were much less happy at the end of the year compared to the beginning of 2006. This could be an indication that the impact of interest rate increases are staring to hit home. |
