Current house prices in Britain are rising almost ten times faster than average earnings as government funded schemes Funding for Lending and Help to Buy send demand skyrocketing, amid fears of a bursting bubble down the road.
The country’s biggest mortgage lender, Halifax, presented figures that showed an increase in November 2013, over the previous month by 1.1 percent, and a 7.7 percent jump year-on-year on the same month.
“Stronger demand, combined with an insufficient increase in housing supply, has resulted in increases in house prices accompanying higher activity this year,” said Halifax housing economist Martin Ellis.
“Low interest rates, improvements in consumer confidence and official schemes such as Funding for Lending and Help to Buy all appear to have boosted demand.”
The lender’s figures also indicated that the price rise in November was the tenth successive monthly increase, but added that the national average house price was still around 12 percent lower than the peak seen in August 2007, just before the global crisis hit.
“Continuing pressures on household finances, as earnings fail to keep pace with consumer price inflation, are expected to remain a constraint on the rate of growth of house prices,” Ellis said.
Experts have warned of the risks involved with government-backed solutions for homebuyers. The Royal Institute of Chartered Surveyors (RICS) noted that more than half of its members registered higher sales prices than were seeing a fall in November 2013.
RICS said the Bank of England’s (BoE) funding for lending scheme had cut mortgage rates, while the latest phase of Help to Buy, offering the chance to buy a home with just a 5 percent deposit, meant that more people could find a place on the ladder.
Senior RICS economist Josh Miller said the pace of demand is exceeding supply in every part of the country and warned that if this trend continues, the combination of cheap loans backed by the state and BoE’s commitment to keep interest rates low could spell trouble down the road.
“It’s very difficult to define what a bubble would be. But the risks of one building at some point have increased. That’s undeniable,” Miller said.
While government schemes are prompting a revival in demand, prices are rising so quickly that a generation of buyers will soon be priced out of market.
Savills, the upmarket estate agent, recently called for 50,000 new homes a year to be built in London, which is double the current program, to address a growing “housing crisis.” Most of these should be aimed at people with incomes below US$82,000 per year.