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Is the house price boom becoming a bubble?

House prices continue to rise – according to the Office for National Statistics, they surged by £20,000 on average over the past year. Property price inflation hit 8.6 per cent in the year to February, the highest annual rate of growth since 2014, while separate data from HMRC showed that property sales also doubled in March compared with a year ago.

soaring prices

There is now much talk about a potential house price bubble, where soaring house prices are fuelled by demand and speculation to the point of collapse. Increased demand and limited supply is replaced at some point by a fall in demand or increase in supply, resulting in a sharp drop in prices.

Over the past year, demand has outweighed supply, which will always lead to high pricing. The North West has seen the biggest growth in values but again, this isn’t surprising due to the lower price point to get on the ladder, and a percentage change will always be higher at a lower price. It also reinforces the point that buyers want more space – and are prepared, and perhaps more able now there is not necessarily the need to be in the office every day, to go further to get it.

Buyers have also used the extreme and constant stimulus from the government as a tool and push to buy. The stamp duty holiday, combined with the recently launched government-backed mortgage guarantee scheme at 95 per cent loan-to-value, will only propel the market further still and it is likely to be strong for a good few months to come. If you are considering a move, then surely when money is at its cheapest, stamp duty is non-existent on purchases up to £500,000, and higher loan-to-value mortgages are available, is the time to do it.

transactions on the rise

Transactions are perhaps a more useful barometer of housing market health than prices so news that transaction levels are creeping back to where they were at the height of the market in 2007 is encouraging. What will be interesting to see is whether this growth is sustainable or simply a reaction to the stamp duty holiday, and its extension. The next three months will give us a better indication of this.

As much as this latest national lockdown in particular has been hard, it is encouraging that people have not hunkered down and retreated but carried on with their plans to move. There was always a worry that people would pull back from the market, faced with the distractions of home schooling and the difficulty in viewing properties, but that hasn’t been the case. Instead, we have seen a good continuation of transactional activity as moves that were put on hold because of Brexit uncertainty have finally been undertaken, while others have brought forward plans to move.

borrowing is cheap

Cheap borrowing is undoubtedly helping fuel demand, with many borrowers never knowing high mortgage rates. It is hard to see them doing so anytime soon, with base rate at a low of 0.1 per cent and showing no sign of rising. The easy availability of money is providing further stimulus to consumer confidence and the market. Borrowers at this point in time are looking on the sunny side of life as it has never been easier to borrow money.

The big question is whether everything will fall off a cliff once the furlough scheme comes to an end and there is potentially a significant rise in unemployment. The government has invested so much cash in propping up the economy and indeed the housing market that it is hard to see it allowing either to happen.

There is always likely to be more demand for housing than supply because we live on an island where there aren’t enough houses being built. Lenders also have much tougher affordability criteria in place – massively overstretching yourself in order to take on a large mortgage is not likely to be possible even if you wanted to.

how MT Finance can help

Increased activity in the market has meant an inevitable slowdown in the length of time it takes for a transaction to complete. MT Finance’s latest Bridging Trends report indicates that for the second consecutive quarter, the most popular use of a bridging loan was to fund a chain-break. It proves that bridging is an increasingly attractive option for buyers who are looking to save their delayed property purchase.

The sheer demand from buyers keen to take advantage of the stamp duty holiday or simply to get their hands on a property, given the acute shortage of stock in some areas, means that bridging may be the solution if a chain is stuck.

Please get in touch to find out how MT Finance can provide you with a faster solution to your funding requirements on 0203 051 2331 or fill in our contact form, and someone will be in touch with you shortly.

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