Mon, Sep 30, 2013 - Page 15 News List

UK housing market recovery fuels new bubble fears


Britain’s housing market is showing strong signs of recovery, largely on the back of surging prices in and around London, fueling fears of a new property bubble, analysts say.

The average cost of a home in the English capital surged by 10 percent between July and this month compared with the third quarter of last year, British bank and major mortgage provider Nationwide Building Society said on Friday.

It added that the average London home, including apartments and houses, now costs £331,338 (US$532,700), 8 percent higher than in 2007 or during the run-up to the global financial crisis that eventually led to prices crashing.

Across Britain, the average price of a home stands at £170,918, after gaining 4.3 percent annually in the third quarter, Nationwide said.

“The acceleration in house prices ... reported by the Nationwide will fuel concern that we could be on our way to a new housing bubble,” said Howard Archer, chief UK economist at research group IHS Global Insight.

“Housing market activity is now really stepping up a gear, supported by markedly strengthening consumer confidence and elevated employment, and fueled by” government initiatives, Archer said.

“On top of this, the Bank of England has indicated that interest rates are unlikely to rise before mid-2016, which seems likely to give many people greater confidence in their ability to purchase a house,” he added.

The government launched a new program called “Help to Buy” earlier this year, offering interest-free loans for a set time period to help buyers purchase newly built properties with only a 5 percent deposit.

The scheme will be extended in January to offer mortgage guarantees for new and existing homes worth up to £600,000.

People will not be allowed to benefit from the scheme if they intend to own more than one property.

Meanwhile, the current state of the housing market has led to divisions in the governing Conservative-Liberal Democrat coalition.

Outspoken British Secretary of State for Business, Innovation and Skills Vince Cable, a Liberal Democrat, has warned that Help To Buy could fuel a new bubble.

However, UK Chancellor of the Exchequer George Osborne, of the Conservative Party, maintains that the scheme is needed to help homebuyers find sufficient deposits.

Britain’s housing market has been bolstered in part by the country’s economic recovery in the first half of the year and on keen demand from cash-rich foreign buyers, particularly for investment property in London.

Analysts also blame a shortage of affordable property for the current boost in prices and estate agencies are reaping the rewards, with upmarket group Foxtons Group PLC enjoying a strong stock market debut this month.

Foxtons and its rivals are also benefiting from rising rental values, which experts say is a consequence of people struggling to afford to buy homes.

Amid market concerns, the Bank of England two weeks ago insisted that it would remain “vigilant” and was ready to act over the threat of a dangerous property bubble.

“There has been much discussion recently on whether the upturn in the UK housing market is too vigorous,” Capital Economics Ltd analyst Matthew Poignton said. “Our view is that housing is already overvalued ... and that makes any further gains in prices a matter for concern.”

BNP Paribas economist David Tinsley said prices were being driven by a lack of supply, but cautioned against speaking too quickly about a potential bubble.

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