x
By using this website, you agree to our use of cookies to enhance your experience.

Economists say that interest rate rises and other tools to deter house price rises are increasingly likely to be used in the short term, possibly as soon as next month.

Some 68 percent of respondents to monthly survey of economists by financial wire service Bloomberg have suggested that new so-called macro-prudential tools' could be used by the Bank of England to stop what it sees as excessive house price rises.

This is finance-world jargon for the ability of the BoE to allow its officials to stipulate higher interest rates for lenders to apply in the new Mortgage Market Review affordability tests.

The tests come into effect at the end of April and the BoE's Financial Policy Committee, which meets in June, could in theory trigger the higher rates specifically for some borrowers.

Concern has been fuelled by the latest house price figures from the Office for National Statistics which shows the average cost of a home increased by 9.1 per cent during the year to the end of February.

This is the highest year-on-year growth since June 2010, pushing the UK-wide average up to £253,000 - a £20,000 increase compared with the same month of 2013. London hogged the limelight again with prices 17.7 per cent higher than a year earlier.

Not every economist is pessimistic, however.

Ernst & Young's Item Club says it is sceptical about the likelihood of an unsustainable house-price boom despite the fact that market indicators point to further acceleration in activity and prices this year.

Its latest report, out this week, says that caution on the part of lenders, the new MMR rules and the BoE's macro-prudential tool should deter rapid credit growth, the precursor to past episodes of excessive rises in property values.

Comments

  • icon

    What a nave view Mr Shinerock, I guess you've never noticed that agents overvalue the whole time, and therefore increase the expectations of vendors, fuelling their greed, and in turn forcing prices upwards.

    And you've probably not noticed either that the present 'boom' which I'm sure you are rubbing your hands with glee about, is actually caused by government manipulation of the market.

    The simple fact is that if the market were driven by affordability and cost of mortgages, the average price of a property in the UK would be around 60,000

    If you are going to set yourself up as some kind of expert, and call yourself a professional estate agent, you need to wake up to the real world!

    • 16 April 2014 16:25 PM
  • icon

    I don't agree that agents control, or even especially affect house prices. As I see it the main drivers are supply and demand. Demand is influenced heavily by the cost and availability of finance, we saw that pre credit crunch and we are seeing it now as credit eases. What is happening is that because supply is short, prices rise to the affordability ceiling imposed by availability and cost of a mortgage. Estate agents are merely the middle men.

    • 16 April 2014 12:20 PM
  • icon

    I've given this in earlier postings.

    • 16 April 2014 10:54 AM
  • icon

    So what is the solution RR

    • 16 April 2014 10:09 AM
  • icon

    Paul:
    I'm glad to see someone prepared to explain from an agent's point of view, for a change but the problem is, it's quite a bit more complicated than many agents currently see.
    The problem is being highlighted by the ONS who have just said that the supply of properties for sale nationally is down 12% year on year, and down 48% since March 2008!
    There is an explanation for this and it's not because house-owners don't want, or need, to move house these days.
    The trouble is that estate agents are still desperately trying to annex the whole housing market for their own gains, even though it is being increasingly damaged by their own efforts.
    By misrepresenting asking prices across the board, and acting only for vendors, they are causing the whole market to contract, just at a time when the Nation needs it to be expanding, from a sales volume point of view.

    Unfortunately, no-one in government seems able to take charge or stand up to these agents and their unscrupulous tactics. The housing market is (has) become effectively blackened by the misdeeds of those manipulating it; no-doubt goaded on by eager vendor clients, who are unaware of the consequences of the tactics being 'sold' to them by their agents.

    The whole thing is now out of control and right out of phase with the rest of the UK economy. The opportunities for correcting this have been duly missed, exactly as the opportunities to correct our nation's finances, which existed before the banking collapse.

    All that can happen now, is house owners must see a severe and natural correction in market prices, to bring them more into accord with general economic indicators.
    This must happen, irrespective of any tactics employed after the fact by The Treasury.

    In a nutshell. the party is over. The restoration of 'normality' will soon have to commence happening.

    This will begin with many owners, previously hoping to sell for a profit, either giving up on trying to sell, or being forced to sell at very substantially reduced prices.

    The naive idea that supply will support these ridiculous prices simply because it lags behind the rising demand for houses is untenable and simply won't withstand any degree of scrutiny. Supply may indeed be short, but without sufficient wealth, there is no economic demand.

    A case in point which proved this hypothesis occurred in Southern Ireland, where whole estates of newly built houses were left to rot and decay, uninhabited and unloved as a result of the lack of wealth their inhabitants encountered as the Euro crashed. These problems are still working their way through the system over there.

    Britain itself is, contrary to the views of come commentators, yet to come out of this unscathed. The fact that money is coming here from a small number of relatively rich investors from abroad is actually confirmation that things are not good. Money from abroad won't, in itself, be enough to remedy the situation.

    There is a solution, but it's not something that estate agents up and down the country are likely to support.

    • 16 April 2014 10:01 AM
  • icon

    Just to comment on realising reality's comments, Estate Agents do not control the market. It is the agents role to read marekt conditions, if the agent 'badly misread market dynamics' then the properties that were inactuatly valued would not sell and remain on the market.

    I am an agent in Greater London and it is shocking to see these price rises. I would love to see more properties on the market for buyers to choose from as it is the lack of properties on the market that is causing the problem. Also the hightened demand fueled by ridiculously low mortage rates. When rates do finally go up there are going to be alot of people in serious financial peril if this continues much longer

    • 16 April 2014 09:13 AM
  • icon

    I blame the agents, for badly misreading housing market dynamics and then gaining easy support by advising the all too hopeful vendors.

    • 16 April 2014 08:22 AM
MovePal MovePal MovePal