What next for house prices?

Posted on 2 September 2013 by Ray Boulger

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What next for house prices?

For 2 1/2 years from mid 2010 residential property prices, based on the national indices, flatlined. However, for the last 6 months prices have increased every month and the property market tends to feed on its own momentum, whether it is rising or falling.

Although rising prices encourage more supply there is a significant time lag and developers will not be able to increase supply enough to satisfy demand. As prices keep rising potential buyers gain more confidence, pushing prices up further.

Pent up demand has been increasing since 2008 and it is only recent Government / Bank of England action has allowed some of that demand to be translated into the actual ability to buy. Funding for Lending provides lenders with, in practice, as much funding as they want, and at cheap rates. This has resulted in the cost of many mortgages falling by over 1%.

An even bigger help for many buyers is the Help to Buy shared equity scheme. This massively reduces monthly costs for those with only a 5% deposit, for 2 reasons. A normal mortgage of only 75% LTV is required and these are available at rates about 2% lower than for a 95% LTV mortgage. The combination of this, plus monthly payments being required on a much smaller mortgage, has a big impact on what is affordable.

Current indications are that house prices will keep rising strongly for at least two years. I expect prices in 2013, based on the Nationwide and Halifax indices, to rise by 8% and next year by a similar amount.

Categories: Property market, Bank of England, Mortgages

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