...it will never be easier for first time buyers to get into the market or current homeowners to upgrade their property...until the expected surge in demand hits the small supply and the already inflating prices, that is. When everything is taken into account, this is the perfect recipe for an overinflated government-pumped housing bubble on steroids.
What do you call it when a nation's average housing price doubles in 10 years? Apparently it depends who you ask.
Lloyds CEO Antonio Horta-Osorio made headlines this week when he used the “B” word in relation to the UK's overheating housing market: bubble. It didn't take long for the vigorous denials to make their way out of officialdom and into the pages of the corporate repeaters, however. Within hours of Horta-Osorio's pronouncements, the incoming “Deputy Governor for Financial Stability” at the Bank of England, John Cunliffe, was stumbling all over himself to deny the housing bubble in the pages of the Wall Street Journal. Shortly thereafter “leading economic forecaster” (the BBC says it so it must be true) Ernst and Young ITEM Club similarly came out to deny that housing prices were out of control.
The numbers, however, speak for themselves. In 2002 the average house price in the UK was 122,000 pounds. As of this past August it stands at 247,000 pounds. The numbers are just as dramatic by whatever yardstick they are measured. Month-on-month increase in UK housing prices was 0.5%. Year-on-year was 3.8%. First time buyers shelled out 185,000 pounds on average for their property, 4.9% more than first time buyers last year. Even economically challenged areas of the country on the peripheries are showing large gains in house prices: year-on-year increase for the North East was 2.3%, and for the North West it was 2.2%. Only Scotland saw a year-on-year drop in prices of 0.7%.
As bubble-ish as these figures are, things are about to get even more heated. This is thanks to a Cameron government initiative known as “Help to Buy” which is about to enter its second phase months ahead of schedule. Under the scheme, buyers will be able to purchase a property worth up to 600,000 pounds with a mere 5% deposit. The government itself is going to guarantee up to 15% of the loan at a cost to the lender, meaning it will never be easier for first time buyers to get into the market or current homeowners to upgrade their property...until the expected surge in demand hits the small supply and the already inflating prices, that is. When everything is taken into account, this is the perfect recipe for an overinflated government-pumped housing bubble on steroids.
But don't worry, BOE officials like Cunliffe and economic forecasters like the good folks at EY ITEM are only too happy to tell you that this program is “well-timed and targeted” and "Household finances are also in much better shape, with debt to income ratios now at sustainable levels,” so there's nothing to worry about. I mean, unbelievably cheap mortgages being guaranteed in part by the government even as prices are already spiking? What could possibly go wrong?