Bank of England Signals Caution Over Help to Buy

This article by Hilary Osborne of theguardian on October 16th, 2013 reveals BoE's concern on the impact of Help to Buy that cause housing prices to rise.

Concern at the Bank of England about the impact of the government's Help to Buy mortgage scheme came to light on Tuesday as official figures showed the British property market has exceeded its 2008 peak.

Martin Weale, one of nine members of the Bank's rate-setting monetary policy committtee (MPC), warned that the scheme to underwrite home loans could push up prices.

Admitting that house prices were already rising "appreciably more rapidly" than had been expected, Weale said there was a risk that "if the mortgage-guarantee element of Help to Buy is not priced satisfactorily, it will add to demand while supply is weak, leading to increased pressure on prices".

The British property market hit a record high in August, according to the latest figures from the Office for National Statistics (ONS), which showed the average cost of a home is now almost £250,000.

The ONS data showed that even before the launch of the second phase of the mortgage-guarantee scheme, house price growth was gathering pace.

Its main index, which measures the price paid in purchases financed with mortgages over the month, surpassed its previous peak by 0.3% to hit 186 in August. That was its highest level since its launch in 1968. It put the average price of a home in Britain at £247,000.

In written evidence to the Treasury select committee, Weale said a booming property market could distort the economy. "Rising house prices may make people feel cheerful and more prosperous, thereby supporting household spending," he warned.

"But rising house prices impose a burden on those who do not yet own houses but aspire to in the future. Like government borrowing, rising house prices can crowd out productive investment."

Weale's submission was published 24 hours after the incoming deputy governor of the Bank, Sir Jon Cunliffe, said Threadneedle Street would keep a "very firm eye" on lenders as Help to Buy was rolled out.

However, Cunliffe said it was "too early to say we are entering into a bubble".

The second part of the Help to Buy scheme, which offers lenders a taxpayer-backed guarantee to encourage them to offer loans to borrowers with small deposits, launched last week and has already prompted a flurry of mortgage applications from homebuyers.

Royal Bank of Scotland, which was the first lender to offer 95% mortgages through the latest phase of the scheme, reported that it had booked 5,000 appointments with prospective borrowers in the first three hours after the launch and taken 10,000 calls in the first four days – double its usual volume. It has extended branch opening hours to cope with demand.

According to the ONS figures, the rate of house price inflation increased through the summer, with the year-on-year increase reaching 3.8% in August, up from 3.3% in July.

However, the growth figures harboured wide regional disparities: the year-on-year increase reflected growth of 4.1% in England, 1.1% in Northern Ireland and 1.0% in Wales, in contrast to a fall of 0.7% in Scotland.

The ONS noted that the capital remains a strong outlier in the property market.
It said that while "house price growth remains stable across most of the UK … prices in London are increasing faster than the UK average".

Its index showed prices in London rose by 8.7% in the 12 months to August and that, when figures for the capital and the rest of the south-east were stripped out, UK house prices were up by 2.1% over the 12 months.

Only in London and the south-east were prices higher than at their previous peak. However, the east of England and the south-west were coming close to that level, the ONS said. The ONS data showed that new entrants to the housing market have seen a steeper rise in prices than homemovers, with prices paid by first-time buyers up 4.9% on August 2012's figure, compared with a 3.3% rise for movers.

In August 2013, the average price paid for a house by a first-time buyer was £185,000, while existing owners paid an average of £283,000.

Despite the headline figures suggesting that prices are running away, economists said activity was still well below the levels recorded before the financial crisis began, and only London was giving real cause for concern.

Howard Archer, chief UK economist at IHS Global Insight, said: "While the strength of house price rises in London is becoming an increasing concern and pushing up the overall national increase in house prices, the ONS data support the view that we are currently a long way off from an overall housing market bubble emerging.

He added: "In fact, in many areas house prices are still well below their 2007 peak levels and rising only modestly at the moment." Housing eceonomists at Capital Economics said the ONS figures were "weighted towards high-value homes and therefore the very strong London market. On most measures, prices are still 10% to 15% below their previous peak."

However, they ackowledged that price rises had outstripped their expectations and that in the short term Help to Buy could give a "significant boost" to the number of buyers.

"While we suspect many will fail the affordability tests, it will put some upward pressure on prices," they said.

"There is a risk that expectations of a new house price boom will become self-fulfilling, even if Help to Buy supports only a few buyers. In that case, the Bank of England is likely to step in to calm the market."

Article Source: http://www.theguardian.com/money/2013/oct/15/house-prices-hit-record-high

Prices on Climb Amid Strongest Market Conditions for Six Years in UK

The market is in its best shape since the financial crisis as demand continues to outpace the number of homes for sale, adding to values, according to this recent article by South China Morning Post on September 4th, 2013.

British house price growth accelerated last month amid the strongest market conditions for six years as demand continued to outpace the number of homes for sale, Hometrack said.

Average values in England and Wales rose 0.4 per cent after a 0.3 per cent gain in July, the London-based property researcher said. Prices were up 1.8 per cent from a year earlier, the most since July 2010.

In a separate report, the Engineering Employers' Federation raised its forecasts for UK economic growth and manufacturing output.

Hometrack's survey adds to evidence of a mini-boom in the housing market, with reports last week showing values rising and mortgage approvals at their highest since 2008.

Bank of England Governor Mark Carney said he was alert to risks from the property market and policymakers would act if signs of a bubble emerged.

Richard Donnell, director of research at Hometrack, said: "A lack of housing for sale is set to remain a feature of the market and this will keep an upward pressure on prices in the near term.

"We expect demand to continue to expand over the remainder of the year so long as the outlook for the economy and mortgage rates remains unchanged."

Underlying market conditions are at levels not seen since the financial crisis, with the average time taken to sell a property falling to 8.1 weeks and sellers achieving 94.6 per cent of the price sought last month, Hometrack reported.

New buyers registering with real estate agents to browse property rose 1.1 per cent, the same as in July. Demand fell in August in each of the last three years. Growth in new property listings slowed to 0.8 per cent from 2.4 per cent.

Seven of the 10 regions tracked by Hometrack showed price gains, led by a 0.9 per cent increase in London. Two regions showed no change while values dropped 0.1 per cent in the northeast.

Signs of economic growth have lifted consumer confidence. The economy expanded 0.7 per cent in the second quarter, and recent data suggests the recovery is gaining traction.

A survey by the manufacturers' organisation EEF and the accounting firm BDO showed manufacturing output rose to a three-year high in the third quarter, with a gauge of production rising to 32 from 12.

A measure of investment intentions rose to 24, the highest in six years.

The group raised its forecast for manufacturing growth next year to 2.1 per cent from 1.9 per cent, following a 0.5 per cent contraction this year.

It also raised its forecast for UK gross domestic product growth to 1.2 per cent this year and 2 per cent next year, versus earlier projections of 1.1 per cent and 1.8 per cent.

"Industry's prospects have brightened considerably," said Lee Hopley, chief economist at the EEF. "There is growing confidence that improving trading conditions will continue into the final months of this year and then accelerate through the gears in 2014."

Nationwide Building Society said last week that home prices rose 0.6 per cent last month and the Bank of England's commitment to maintain record-low interest rates until at least the end of 2016 may be helping to support demand.

Article Source: http://www.scmp.com/property/international/article/1302634/prices-climb-amid-strongest-market-conditions-six-years-uk