Are house prices we are seeing sustainable?

publication date: Mar 13, 2014
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Property price reports from Rightmove, Hometrack, Nationwide, Halifax and Land Registry consider whether price rises are sustainable

The latest property price surveys continue to spark headlines and fears of 'house price bubbles' and whether prices will crash or not.

The problem with a lot of property price reports is they only look at month on month or year on year statistics. That's not a great deal of use to someone buying, selling or investing. They aren't property traders, and what they really want to know is:-

  • If prices are going down and I need to buy - what do I need to do?
  • If prices are going up and I am competing with 20 other buyers - should I not bother or keep going?
  • And from an investor's perspective - what are the pros and cons of buying in a poor or good property market? 

The reality is, in the main, property prices even in London, are pretty good value for money. Yes, they peaked in 2007/8 and yes, some property prices have surpassed this level, but it doesn't mean they aren't good value. On average, Hackney prices go up about 18% per year. Between 2007 and 2013 they grew by 36% - that's a lot less than normal. And half of this growth took place in 2013 alone.

Download my latest summary of property price reports

Is Help to Buy to Blame?
When people fear something is happening which is considered 'bad news' the next thing they turn to is - who or what is to blame?

And Help to Buy has come in for huge criticism ever since it was introduced. And now the National Audit Office has stated they aren't happy with it either, as they are struggling to find numbers to analyse the value for money it's given to the tax payer. Welcome to the world of property statistics - they are much more complicated than many other markets!

The problem is that when you look at the success of Help to Buy by Region, it's not London that's the big taker so far - it's places like Yorkshire and the Midlands. Only Birmingham is really showing any signs of price rises, the other regions are pretty much still in the doldrums. So here, Help to Buy has increased transactions, but it's not impacted on prices so much.

So it's difficult to 'blame' Help to Buy entirely for a more bouyant market.

Is it down to low mortgage rates?
I think this is much more likely to have an impact. A recent report from the Intermediary Mortgage Lenders Association suggests that what Help to Buy has done is bring back 95% LTVs. But it's not just through Help to Buy lending, it's also through the likes of the Yorkshire Building Society and others who are offering the same deals as Help to Buy, just not using the the Government's scheme.

In their view, the bigger impact Help to Buy has had is quite a positive one moving forward - and that's an increased desire for people to buy new build. That can't be a bad thing. A RIBA study I was involved in, showed only 25% of people wanted to buy new. This is disasterous, as there aren't enough existing homes to go around in the future, so we need buyers to prefer new build and it seems this, together with better design and quality, is working to change hearts and minds.

Brokers are feeding back that the existing Help to Buy scheme can probably come to an early end, while the new build scheme may be worth extending.

Download my latest summary of property price reports

Let's not forget we have SIX years of millions of frustrated buyers out there!
We do seem to have short memories when reporting on property. From 2008 to 2012, we sold half the number of homes we would normally. That leaves pretty much 500,000 buyers each year, not buying. That's five years and 2,500,000 people who would have bought if the market was OK - who chose not to. 

Now part of this is due to demography. During this time, we also had more people starting to own their homes outright, and this is because we have an ageing population coming to the end of their mortgage terms. People later in life move less. Hometrack's survey backs this up, with the average time someone spends in a property now 25 years (normally 15, the 8 often quoted was exceptional and towards the end of the 80s only).

But still, no wonder there are 20 people turning up at property doors around London. Properties are far less likely to come onto the market in these areas, there is little new build, population is rising dramatically and people have had five to six years to save.

And if this is correct, we should see buyer demand settling down a bit over this year or next. The RICS have already seen this coming through in their survey for February, and with more properties coming onto the market, hopefully demand and supply will be better matched and prices will end up rising at a gentle 4-5% per year.

Confidence helps too
Great mortgage rates, 95% loans, pent up demand, plus a bit of Help to Buy, is what's driving the market forward. Property markets move for a number of reasons - not just one, so it's pointless blaming Help to Buy and pulling it won't have much impact.

What are your thoughts? It would be great to hear from you, ideally by linking up to my Residential Property Group.

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