The Perfect Storm


At 6:30am last Monday morning, at the peak of the St Jude Storm, I was strapped into a seat on a plane taxiing into an 80 mph headwind.  With no fuss whatsoever it accelerated down the runway and took off.  After a couple of mildly anxious minutes we were above the storm and enjoying early morning sunshine over breakfast.  The moral here is not “fortune favours the brave”.  It is “keep calm and trust the expert”.  Actually the plane was able to take off and get above the surface weather more easily and quickly than normal precisely because there was a 80mph headwind.

The storm blew over quickly and left many people pouring scorn on what they perceived was an overreaction.  I can tell you that driving to Gatwick at 4:45 in the morning was no laughing matter.

So, is there a perfect storm brewing in the housing market with a combination of Help to Buy, eased lending criteria added to undersupply and pent-up demand? What do the experts say? And should we trust them?

The latest report on the property market in England and Wales from the Land Registry shows house prices have gone up by 3.4 per cent in the year to September. However, the really important statistic is that house price inflation is accelerating – prices have gone up by 1.5 per cent in the last month.  This means that the price of the average house jumped almost £2,500 in September. But while this level of increase suggests a bubble emerging, property transactions remain a third down on the levels seen in 2007 before the financial crisis hit.

Dr Howard Archer, chief European and UK economist at consultancy IHS, says: “It is vitally important for economic stability and longer-term growth prospects that a new housing price bubble does not emerge. And there is a mounting danger that house prices could really take off over the coming months, especially if already significantly improving housing market activity and rising buyer interest is lifted appreciably further by the Help to Buy mortgage guarantee scheme which will take full effect in January.”

“It is therefore of vital importance that policymakers closely monitor the situation and are prepared to act quickly and decisively if signs of the housing market overheating become increasingly widespread and pronounced.”

However, Peter Spencer, chief economic advisor to the Ernst and Young ITEM Club does not share these concerns: “The Government’s efforts to revive the mortgage market have been well-timed and targeted, and will benefit most regions in England.”

“Despite the recent criticism of these initiatives, the chances of seeing another housing market bubble are extremely slim. House prices and transactions are only just recovering from the credit crunch and will be paltry in comparison to those of a decade ago. Household finances are also in much better shape, with debt to income ratios now at sustainable levels.

David Newnes, director of LSL Property Services, said  “More mortgages are being approved and waves of first time buyers are returning to the market, meaning there’s certainly cause for renewed optimism and confidence.”

“Help to Buy and more lending at higher LTVs (the loan expressed as a proportion of the value) have provided a vital boost and this is giving a helping hand for those who have been struggling to step up onto the property ladder. But this is still a tall order for those still trying to save for a deposit and the increases in demand must be matched with greater supply to maintain a healthy property market in the long term. And for this we need more new homes to be built.”

Today's Conveyancer