UK house price growth is at its fastest in 4 years, showing a 9.9% growth in the past year. The rise was a massive 18.7% in London and the South East, skewing the overall figure, while the rest of the country saw a less dramatic rise of 6.3%.
The figures, released by the Office for National Statistics, illustrate the massive relative difference of the market in London, compared to cheaper parts of the UK. With the 18.7% rise, the average home in London has added £77,418 to its value in the past year. This sum would buy an average home outright in locations like Bradford or Belfast.
Good News for Those with Negative Equity
Dr Alla Koblyakova, a mortgage finance expert from Nottingham Trent University, indicated that the significant house prices rises do not represent a threat to the UK economy. She warned against government intervention to rein in house prices.
"What we’re seeing here is the first sign of a meaningful outcome from the recession and the only current threat to the market is the potential new Government policy which would artificially stop natural financial development," she said.
"We must not forget that house price increases can be a good thing for a lot of people, especially those who may have been left in negative equity following the recession. There’s really no need to cap loan-to-value ratios, especially when you consider that mortgage payment-to-income ratios are still used by lenders to control borrowing."
Slow-Down Predicted with Mortgage Market Review
Brian Murphy, head of lending at the Mortgage Advice Bureau, predicted that growth would steady over the course of the rest of 2014, as more stringent mortgage rules come into force.
"The full impact of Mortgage Market Review is still yet to be seen, so knee-jerk decisions by the government to restrict house prices could well shoot recovery in the foot," he said. "The focus instead should lie on building new houses, as a chronic shortage of supply will seriously restrict consumers’ ability to fulfil their homeowning ambitions if not addressed soon."
In fact, it seems as though the first signs of the slow down are already taking place. The Royal Institute of Chartered Surveyors reported that demand for London properties has fallen back in the last month, for the first time since early 2013. The report also showed that there are fewer homes on the market, for the fifth month in a row.
RICS also reported that although house prices are at a 4-year high, the rate at which sales were actually being finalised in London and the South East was not increasing, and remained steady. RICS chief economist, Simon Rubinsohn, summed up the report:
“What we are really seeing is some of the very strong upward momentum starting to come off the housing market, as a lack of supply, higher prices, more prudent lending measures and some of the talk from the Bank of England are creating a level of caution among sellers and buyers”
"The most visible indicators of this are the revised downwards price expectations for the next 12 months and the flatter picture regarding new buyer enquiries. In particular, we're seeing the London market level off."
Secretary of State for Business, Innovation and Skills, Vince Cable, praised the Mortgage Market Review and its potential to slow the housing market, especially in the capital.
He accepted that many Londoners who had previously been ready to buy a home would now be unable to due to stricter mortgage laws:
“The desires of individuals have to be balanced against the stability of the economy as a whole. I don't want anyone to suffer but we have to make sure that the boom that is currently taking place in prices does not get out of control.”
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