The big questions on the UK housing market: what the analysts say

November 28, 2013

Although UK house prices will head steadily higher in the next two years, analysts polled by Reuters are divided over whether the Bank of England can restrain the market if it overheats. Here’s what they said in the latest Reuters poll, taken this week:

How confident are you in the BoE’s ability to moderate the housing market if necessary?

PETER DIXON, COMMERZBANK: “Not very. A cynical interpretation would be that the government wants to see a decent rise in house prices over the next couple of years and would not be best pleased to see the BoE take the steam out of it. Nor is it clear that the BoE has the policy instruments to target the housing market without causing collateral damage elsewhere in the economy. Finally, it would call into question the thrust of policy if Help to Buy is giving to the housing market with one hand whilst the BoE is taking away with another.”

PHILIP LACHOWYCZ, FATHOM FINANCIAL CONSULTING: “Not at all. The Bank of England through the FPC does now have the instruments and mandate to take specific action in the housing market. However, we find it unlikely that it will take any action as it would mean directly working against government policy.”

AZAD ZANGANA, SCHRODERS: “The Bank of England is not in the business of moderating house prices, only stopping financial instability as a result of bubbles. There is no evidence to suggest that a speculative bubble is building, for example, mortgage equity withdrawals. A fundamental lack of supply in housing is driving up prices, and the only sustainable solution to this crisis is to build more homes. “

RAY BOULGER, JOHN CHARCOL: “Not very, not least because many parts of the UK are a long way from needing prices moderated and it would be difficult for the Bank to introduce a regional policy. However, the ending of FLS in Jan 2015 will have a moderating effect if it is not renewed or replaced with something else.” 

STEPHEN LEWIS, MONUMENT SECURITIES: “The BoE will be reluctant to acknowledge that its policies have contributed to ‘overheating’ and so will tend to be behind the curve in moderating the market.”

On the outlook for UK housing:

MELANIE BOWLER, MOODY’S ANALYTICS: “House prices are expected to rise once again in the New Year as pent-up demand is let loose by a recovering economy, an improving labour market, record low mortgage rates, and the government’s help to buy scheme for people capable of making small down payments.”

HOWARD ARCHER, IHS GLOBAL INSIGHT: “Latest data and surveys are consistently showing markedly rising buyer interest, significantly strengthening housing market activity and firming house prices. It is evident that activity is being supported by markedly improved consumer confidence, elevated employment and extended low mortgage interest rates and is being fuelled by the Funding for Lending Scheme and the Help to Buy initiative. House prices therefore look set to see further solid increases over the coming months, and they could very well rise by another 1.5 percent or so over the last couple of months of 2013 and then increase by around 8 percent in 2014. ” 

JONATHAN DAVIS, JONATHAN DAVIS WM: “UK housing has been in a bubble for 10 years. All bubbles eventually burst though, with massive political intervention, they can sustain longer than usual.” – 

Is prime London property an example of an asset bubble?

PETER DIXON, COMMERZBANK: “No (ironically). If we define a bubble  as an unsustainable rise in prices which is likely to correct I suspect that the London prime market is not a bubble. The surge in prices reflects a genuine supply-demand imbalance. Whether this is desirable is, however, another matter because it forces up prices in other regions which may later take on the characteristics of a bubble. ”


PHILIP LACHOWYCZ, FATHOM FINANCIAL CONSULTING: “In a joint report with Development Securities we found that over the past year Prime Central London prices had moved beyond what we can easily explain by fundamentals. The risk that we are witnessing a bubble in PCL prices has certainly increased.” 

HOWARD ARCHER, IHS GLOBAL INSIGHT: “While the strength of house price rises in London is becoming an increasing concern and pushing up the overall national increase in house prices, we are currently some way off from an overall housing market bubble emerging. Indeed, on the Halifax measure, house prices overall in October were still 13.8% below their peak level of August 2008. ” 

JONATHAN DAVIS, JONATHAN DAVIS WM: “If it walks like a duck… Yes.” 

STEPHEN LEWIS, MONUMENT SECURITIES: “A ‘bubble’ would imply that prices might fall suddenly and steeply, but there seem to be enough international cash purchasers to prevent that happening. ” 

Help to Buy:

MATTHEW POINTON, CAPITAL ECONOMICS: “We are not convinced that the second stage of the Help to Buy scheme will have a large direct impact on housing demand – for most buyers it will be cheaper to rent and many applicants are likely to fail the strict affordability tests. But by raising expectations that house prices are set to rise the scheme has contributed to very tight housing market conditions, and put prices under upwards pressure. “

TONY WILLIAMS, BUILDING VALUE: “Help to Buy is like pouring petrol on the flames and is a redux of the double MIRAS sponsored by Nigel Lawson in 1988. Heaven help us. “

MELANIE BOWLER, MOODY’S ANALYTICS: “So far, just under 2,400 mortgage applications have been approved via the Help to Buy scheme, amounting to 365 million pounds in new lending. A total of 12 billion pounds has been earmarked for the scheme, suggesting that at an average £155,000 per household, just under 77,500 buyers will be able to participate. According to HM Revenue and Customs, there were 932,150 house sales in 2012, up from 884,040 in 2011 but well down on the 1,667,700 reported in 2006. This suggests that worries about the help to buy scheme fuelling a property price bubble are unfounded; such purchases will account for at most 8 percent of all sales.”


RAY BOULGER, JOHN CHARCOL: “The biggest change in the mortgage market over the next 2 or 3 months will be a rapid increase in the choice of 95 percent LTV mortgages, most of which will be offered outside Help to Buy 2. However, Help to Buy 2 has been the catalyst for other lenders to enter the market or improve their products.The biggest change in the mortgage market over the next 2 or 3 months will be a rapid increase in the choice of 95 percent LTV mortgages, most of which will be offered outside Help to Buy 2. However, Help to Buy 2 has been the catalyst for other lenders to enter the market or improve their products.”

HOWARD ARCHER, IHS GLOBAL INSIGHT: “(There) is a mounting danger that house prices could really take off over the coming months, especially if already significantly improving housing market activity and rising buyer interest is lifted appreciably further by the “Help to Buy” mortgage guarantee scheme which was launched earlier in October. It is therefore of vital importance that policymakers closely monitor the situation and are prepared to act quickly and decisively if signs of the housing market overheating become increasingly widespread and pronounced.”

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