British housing market facing new bubble fears

British housing market facing new bubble fears

Sunday, September 29, 2013 – 12:02

AFP

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.