British housing market facing new bubble fears

British housing market facing new bubble fears

Sunday, September 29, 2013 – 12:02


LONDON – Britain’s house market is showing strong signs of recovery largely on the back of surging prices in and around London, fuelling fears of a new property bubble, according to analysts. The average cost of a home in the capital surged by 10 per cent between July and September compared with the third quarter of 2012, British bank and major mortgage provider Nationwide said on Friday.It added that the average London home, including flats as well as houses, now costs £331,338 (S$670,000) – 8.0 per cent higher than in 2007 or during the run-up to the global financial crisis that eventually led to prices crashing.

Across Britain, the average price of a home stands at £170,918 after gaining 4.3 per cent in the third quarter on an annual basis, Nationwide said.

“The acceleration in house prices… reported by the Nationwide will fuel concern that we could be on our way to a new housing bubble,” said Howard Archer, chief UK economist at IHS Global Insight research group.

“Housing market activity is now really stepping up a gear, supported by markedly strengthening consumer confidence and elevated employment, and fuelled by” government initiatives, Archer said.

“On top of this, the Bank of England has indicated that interest rates are unlikely to rise before mid-2016, which seems likely to give many people greater confidence in their ability to purchase a house,” he added.

The government launched a new programme called “Help to Buy” earlier this year, offering interest-free loans for a set time period to help buyers with only a 5.0-per cent deposit to purchase newly built properties.

The scheme will be extended in January to offer mortgage guarantees for new and existing homes worth up to £600,000.

People will not be allowed to benefit from the scheme if they intend to own more than one property.

The current state of the housing market has meanwhile led to splits in the governing Conservative-Liberal Democrat coalition.

Outspoken Lib Dem Business Secretary Vince Cable has warned that Help To Buy could fuel a new bubble.

However, Conservative MP George Osborne, who as finance minister holds a more senior role in government, maintains that the scheme is needed to help homebuyers struggling to find sufficient deposits.

Housing market boosted by several factors

Britain’s housing market has been bolstered in part by the country’s economic recovery in the first half of the year and on keen demand from cash-rich foreign buyers, particularly for investment property in London.

Analysts also blame a shortage of affordable property for the current boost in prices. And estate agencies are reaping the rewards, with upmarket group Foxtons enjoying a strong stock market debut this month.

Foxtons and its rivals are also benefiting from rising rental values – a consequence, experts say, of people struggling to afford to buy homes.

Amid market concerns, the Bank of England (BoE) last week insisted that it would remain “vigilant” and was ready to act over the threat of a dangerous property bubble.

“There has been much discussion recently on whether the upturn in the UK housing market is too vigorous,” said Matthew Poignton, an analyst at consultancy firm Capital Economics.

“Our view is that housing is already overvalued… and that makes any further gains in prices a matter for concern.”

BNP Paribas economist David Tinsley said prices were being driven by a lack of supply but cautioned against speaking too quickly about a potential bubble.

“The argument that there is a housing bubble in the UK right now is not persuasive,” Tinsley wrote in a note to clients.

“Arguably, there is a deep-seated supply problem in the UK, which is forcing up the real price of housing, but that is not the same thing” as a bubble leading to a crash, he said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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