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p>It might be tempting to dismiss economists who talk up the UK’s 'housing bubble' as scaremongers – that has been the response of policymakers such as George Osborne, who say they see no evidence of house prices spiralling out of control.
But the history of our housing market is littered with stories of boom and bust, and on each occasion those who warned prices rises were unsustainable were ignored, only to be proved right in time.
For that reason, property investors should now be careful in their approach to the housing market. That’s not to say there aren’t still potential opportunities to exploit – quite the opposite – but caution is important in a marketplace where there is growing evidence of overheating in some areas.
The headline numbers are reassuring. Nationwide Building Society’s latest figures show house prices across the UK rose 5.8 per cent over the year to the end of October. That’s hardly runaway growth – and prices remain 7 per cent below the peak seen in 2007.
Moreover, Nationwide’s numbers may overstate house price inflation because they are based only on property purchases against which the building society has offered a mortgage. The Land Registry’s figures, which also include cash purchases, put the annual rate of increase at 3.4 per cent (albeit over the year to the end of September, rather than October).
However, these are average figures for the whole country and they mask significant regional variations.
In London, in particular, prices are now growing much more quickly. Nationwide reckons the annual increase for the capital was 10 per cent over the year to the end of September, while the Land Registry’s estimate is 9.3 per cent. Other surveys have put annual house price inflation in the capital as high as 13.8 per cent – one suggested prices rose by an average of 10 per cent during October alone. These rates of increase are much more in bubble territory.
So far, the London phenomenon – fuelled in part by the increasing number of foreign buyers for property at the top end of the market – has not spilled over into other regions. In the South-East of England, Nationwide says house price inflation was running at only 3.4 per cent by the end of September, though East Anglia (6.6 per cent) and the East Midlands (5.0 per cent) were seeing prices rise faster.
Inevitably, however, there will be knock-on effects from the London boom. And it is noticeable that Nationwide’s national averages are rising quickly. October’s figure of 5.8 per cent was up from 5 per cent in September and 3.5 per cent in August. As recently as February, the building society was recording no annual house price inflation at all.
In summary, there’s still a huge amount of potential and opportunity within property, but people do need to tread carefully. But then, when was it any different?
It might be tempting to dismiss economists who talk up the UK's 'housing bubble' as scaremongers – that has been the response of policymakers such as George Osborne...
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