The fine balance between paradise and panic
By The Lead TakerFor existing homeowners, the sun is finally shining, as their properties regain their pre-crisis values, albeit slowly across most of the country…
Section: Opinion
For existing homeowners, the sun is finally shining, as their properties regain their pre-crisis values, albeit slowly across most of the country…
But the UK housing market could still be at the centre of a perfect storm if panic over rising house prices means politicians lose their nerve and fail to accept that aberrations are bound to occur in a free market.
House prices are rarely out of the news in the UK, but it's worth remembering that despite our infamous obsession with property, home ownership ranks behind that of Hungary, Spain, Greece and Italy.
Admittedly, the UK is in a class of its own when it comes to volumes of housing transactions, made possible by our vast and complex financial services sector (albeit less vast and complex than in recent memory!)
But RBS has recently announced that it is introducing tighter restrictions on mortgage lending - allowing customers to borrow only four times their income on higher loans - addressing inflationary pressure in London, in particular. Lloyds has taken similar action.
Meanwhile, Bank of England figures show that lenders approved 62,918 mortgage applications in April, the lowest number since July 2013. Approvals peaked in January 2014 at 75,838 - unsurprising, given that the market is adjusting to the recommendations of the Mortgage Market Review.
And Government data shows that just 27,861 people across the country purchased a new home via the Help to Buy scheme, with the vast majority of sales outside London and at prices well below the national average.
Apparently, Help to Buy accounts for only a small percentage of overall house sales (less than 3 per cent) and the average house price to income multiple under the mortgage guarantee scheme, is just over 3x salary.
The scheme is also benefiting every region of the country, with over 94 per cent of completions outside London.
So it was a bit rich and I was somewhat taken aback by the European Commission's recent input, recommending that the UK "continue to monitor house prices and mortgage indebtedness and stand ready to deploy appropriate measures". What? Is the Commission unaware of the fact that the UK housing market is the most mobile in Europe and unlike that of other countries where home ownership is high, but properties are passed down through families?
Pro-Europe as I am, this intervention from Brussels is too much - particularly as the EC goes on to suggest that the Financial Policy Committee stands ready to deploy macro-prudential regulation of the housing sector.
No! And no again to the IFM adding to the debate in similar terms - we British already have a tendency to legislate ourselves into the most distant corner of a dark room where we sit and bleat. We don't need any help or advice in how to do that.
Even Canadians are tempted to join in - if Mark Carney's recent jitters over UK house prices are anything to go by - but the way I see it, markets are like any organism ... if they get a fever, they need recovery time - not a reactionary Bank of England.