UK house prices outstripped their highest valuations of 2007 casting doubts on the supposed cooling of the housing market. Rising for the 14th successive month, house prices grew by 1% in June which in turn stretched the annual rate of increase to 11.8% – the most sizeable rise since 2005.
The Nationwide, basing their findings on their own mortgage data, valued the average UK property at an unprecedented £188, 903. But when juxtaposed with the average price of a property in London, which stands in excess of a daunting £400, 000, the initial figure is somewhat overshadowed.
London is brutally expensive now for prospective house-buyers. Imbued with verve and extemporaneity, London has always had a sense of unpredictability at its core. Yet far from being a deterrent, it is the dynamism and energy borne out of the raw volatility of the place which sparks such buyer interest.
However, London’s capricious complexion is unfortunately mirrored in its housing price fluctuations, as highlighted by the rate of increase in the three months leading up to June. This came in at a whopping 26% compared with the same time period the year before.
However, despite the swell in house prices, the Nationwide noted that there was ‘significant variation’ across the country which implies a greater degree of affordability in house prices away from the capital. The building society also said it expected price increases to flatten in London from July onwards.
Although all regions across the UK have seen an increase in house prices, surveys in recent months have strongly suggested that markets are moving at different speeds around the country.
Despite prices growing exponentially on a monthly basis in London, the Land Registry said only last week prices were falling in areas on Wales and in the North West of England.
Prices grew by 1% in June – higher than the previous month’s rise of 0.7%; this signified the 14th consecutive month in which house prices have risen. The figures are drawn from Nationwide’s mortgage data, which also serves as the first insight into the movement of the housing market in June.
“The price of a typical property in London reached the 400,000 pound ($681,000) mark for the first time, with prices in the capital now around 30 percent above their 2007 highs and more than twice the level prevailing in the rest of the UK”: said Nationwide’s chief economist Robert Gardner.
However, in spite of the data gathered, the building society forecasted that price growth in the capital was dampening, a perspective which rested on “anecdotal evidence” from surveyors and estate agents.
“There are already signs that buyers are starting to say enough is enough,” said James Hall, a director of a London estate agent.
“Whereas a few months ago, buyers were offering silly prices on some very average properties, the silly season in the capital seems to have passed.
“Buyers are now taking their time, and making fair offers. We are definitely seeing fewer properties going for or over asking price.”
The Bank of England’s flagship Financial Policy Committee recently imposed several measures on lenders in an attempt to address the overheating housing market. These consisted of:
Tough sanctions for lenders who do not show diligence and check whether mortgage applicants can afford a 3 percentage point rise in interest rates.
From October 2014, cracking down on risky lending by levying a 15% cap on the number of mortgages that lenders can give people who seek to borrow over 4.5 times their income.
Nationwide’s chief economist, Robert Gardner, has spoken out against these changes, stating that they are unlikely to have a ‘significant impact’
Mr. Gardener said: “Most major lenders are already using a stress rate in their affordability calculation… similarly, the proportion of house purchase loans at or above 4.5 times borrowers’ income is currently some way below the 15% cap.”
Indeed, roughly 10% of loans fall under this category across the regions, compared with 20% in London.
As such, Nationwide do not accept that these measures will successfully combat the housing price boom in the short term. Moreover, the lack of new houses being built has led to a blockage in supply. As such, demand exceeded supply, which serves to drive prices up even more.
Recent speculation that banks will push up interest rates later this year gives hope to Mr. Gardener who said about the matter:
“If this is sustained, it is likely to feed through to mortgage rates, which would also help to prevent buyer demand rising too strongly.”
“It is important to note that the Financial Policy Committee does not have the tools to address the fundamental problem with the housing market – the lack of supply,” he said.