Is there really a housing bubble on the horizon?

"Perhaps it is in our very nature, but it seems that we are unable to escape one crisis without believing that the next one is just around the corner. Panorama's recent programme entitled The Great British Housing Bubble attempted to stoke the flames at the prospect of a looming housing market collapse. But what of their evidence? In my view, it fell well short of the standards we might expect of a BBC documentary. The data supporting the programme was either inaccurate or anecdotal, principally focusing on an apartment in London that had generated 156 viewings in 3 hours and dodgy stats on the % of first time buyers able to access the market versus the situation in 2005.

The fact is that the property market does not begin and end in London. The Capital aside, prices are lower than their 2007 equivalent in 86% of locations across the UK (source Hometrack) and Real UK House Prices are below trend (source Nationwide).

It is true that many first time buyers are deferring the decision to buy a home partially to see what happens in the market, partially through affordability problems and partially through lifestyle choices (when I was a young estate agent first time buyers entered the market as a couple, and chose to save for a deposit rather than buy cars, holidays and designer phones and clothes).

The new Help to Buy scheme is not, as stated in the programme, to encourage irresponsible lending, but to encourage lenders to open their coffers to new borrowers who have a good credit track record and are very likely to maintain payments, even when interest rates start to rise. No, mortgage rates will not rise nine-fold as implied in the programme; as the 0.5% base rate inevitably increases, mortgage rates will rise more gradually, probably moving towards the trend average of 2% above base rate rather than the current 4%. So, even if the base rate rose to 4%, mortgage rates would only be around 6% which would be affordable for most borrowers.

The programme rightly pointed out that many people are excluded from the market due to low wages. I totally agree that we must build more affordable homes for those struggling to make ends meet. Governments, councils and housebuilders must work together to solve this problem.

The received wisdom amongst some commentators is that property prices are too high and that it would be good for everyone if house prices fell. Would it be good for first-time buyers who bought the previous year? No, the best result for everyone would be a low interest rate, low house price inflation landscape, ideally with prices rising no more than 5% per annum. Current house price growth is around this figure nationally, and likely to remain at this level for a number of years. The Bank of England now has the responsibility of overseeing bank lending and has been clear that it will use a number of different levers at its disposal to ensure that they deliver a stable housing market for the long term. Personally I have a lot more faith in our new Governor, Mark Carney than any of the programme makers at Panorama."

Kevin Hollinrake
Managing Director
Hunters Property Group