Soaring demand levels making housing bubble increasingly likely, says Hometrack
Fresh fears of a potential ëhousing bubbleí occurring in the near future have been raised, following new data released about levels of demand in the UK at present by a leading property researcher.
Hometrack, found purchasers of property across the UK are currently paying the highest percentage of asking prices seen in ten years, which clearly displays how vigorous demand for housing is at present; despite rising prices and relatively low wage rises.
In the capital, Hometrack found that most purchases made in the past three months have been made for over 99% of the asking price, which has been incurred due to soaring levels of external demand for foreign investors.
The news comes on the same day as estate agent Savills identified that southern England would likely experience a shortfall of over 150,000 properties by 2018, due to local councils "simply not planning enough new homes to meet the growing housing need."
Hometrack identified that property prices rose by 0.6% in March this year, which is lower than the 0.7% growth rate displayed the month before. However, the researcher argued that recent demand level figures- which indicated that demand had risen by a staggering 6.6% in March this year- suggest that sharper rises in the future are imminent, particularly because equivocal data towards the rate of supply showed that it had risen by just 1.9% in the same period.
And the property researcher has warned that in the South East and London, the chances of a housing bubble occurring are becoming increasingly likely unless measures are taken to create a larger number of properties to address the future shortfall that will be incurred from a lack of sufficient house building.
The Bank of England recently moved to assure UK households about the possibility of a ëhousing bubbleí, outlining that it would take immediate measures to slow down activity in the property market should price and demand figures continue to rise at such an alarming rate.
The base rate of the Bank being held at its historic low of 0.5% has been cited as a huge factor for increased activity in the property market, as it has enabled aspiring homeowners to acquire the capital for their purchases at substantially lower borrowing costs than they otherwise would.
This actuality, coupled with the introduction of the governmentís Help to Buy scheme, which has enabled people to acquire 95% loan to value mortgages with just a 5% deposit requirement, have been given as the primary reasons for the surging levels of demand in the country at present.
Richard Donnell, director of research at Hometrack, highlighted that the problem of housing shortages is not applicable to all places across the country, with the North, Yorkshire and the East Midlands only experiencing a 2% rise in property in the past three months.
He also refused to attribute the staggering rise in property prices to the governmentís Help to Buy scheme, which has been under intense political scrutiny in recent times for allegedly artificially increasing demand at a rate that supply simply cannot keep up with.
"The overall volumes of sales supported by the scheme remain relatively small. The real driver of higher house prices is record low mortgage rates and strong demand from first-time buyers and investors who have no property to sell which is compounding scarcity," he said.
Last week, the Office for Budget Responsibility argued that the likelihood of a housing bubble occurring in certain areas was rising at all times, and forecasted a number of ëbubble likeí activity to occur later on this year.
Robert Chote, head of the independent organisation, which provides the government with analytically based predictions, told MPs on the Treasury committee:
"With very rapid house price increases in some parts of the country you might see bubbly activity where people are willing to buy stuff off-plan or not intend to live in it."
Help to Buy claims ëfar from the truthí
Housing firm Countrywide have mirrored the stance of Hometrack about the impact the governmentís Help to Buy scheme has had on price increases, arguing that it having a larger impact on boosting housebuilding levels.
Countrywide argued that the equity loan scheme, which has allowed first time purchasers to acquire 20% of a new-build properties finance from the government at the cost of just a 5% deposit.
However, whilst the scheme has been intended to address housing shortages in key areas, Countrywide has indicated that the highest level of new build homes created via the scheme have been in areas with relatively low prices rises.
"Claims that the Help to Buy scheme is causing a housing bubble are far from the truth and the facts speak for themselves. As a proportion of transactions both parts of Help to Buy together support only 2% of transactions in London compared with 10% in the north-west, where support is most needed," said Countrywide's chief executive, Grenville Turner.
"The scheme has had a positive impact on house builder confidence with many now believing that they can sell what they build, which as we know means they will build more."
Savills have argued that whilst the Chancellor has taken steps to raise housebuilding levels, such as his announcement of a new 15,000 garden city in Ebbsfleet that nevertheless a number of similar initiatives would have to be instigated in the next three years in order to deal with the urgent problem of housing shortages in the South of England.
Areas such as Cambridge, Oxford, Reading and Brighton were identified as the places at most risk of soaring property prices in the next few years, as people are forced to move out of the capital.
Savills planning director, Jonathan Steele added: "We need to plan larger scale developments as a matter of urgency to meet local need and anticipated London overspill."
"The chancellor's recent commitment to a new 'garden city' in Ebbsfleet, with an initial 15,000 new homes, is welcome but it is a drop in the ocean ñ the equivalent of just four months' requirement for housing in London."
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