When will we see the next house price boom?

When will house prices start to rise again?

It is not just speculative purchasers of property and those with little or no equity in their own family home that want the answer. Britons have a love affair with property ownership and the prospect of increasing house values is a hot topic.

If you are looking at lenders making life easier before property prices increase, then I believe you are looking in the wrong direction. There is no doubt that easy borrowing was a huge factor in fuelling the last property boom. But in each of the UK’s historical property booms, the key ingredients that caused the catalyst have been different, or at least in different measure. That being said, I am certainly not of the same opinion as many experts who claim that mortgage lender criteria will never become more relaxed. It will, given time. But again the mix of ingredients that will drive house prices in the future will be  different.

No matter what market you study, supply and demand is a simple equasion. And the UK housing market is subject to the same laws of supply and demand as any other sector. An aging population combined with an increasing number of immigrants will be the next key ingredient to drive house prices upwards.

Hard to believe? Professor David Miles (who sits on the BoE monetary policy committee) has released a paper whereby he predicted a trend of rising real incomes and the likelihood of rising population density which will in turn show a rise in real house prices. There are currently 62.2 million people living in Britain. That is set to increase to 67.2 million over the next 7 years (fig from Office for National Statistics) and to 71.4 million by 2030.

Of course, this does not mean that every person coming into the UK, or UK residents coming of age to buy, will be able to buy. In 1986 the average cost of a home in a UK city was £35,209 and it now stands at around £170,000. Also, the average person these days spends more money on gadgets and less is put away on savings than any other generation. So saving a deposit for a home is a lower priority. Combine that with the issues around being able to prove to a lender that you can repay a considerable loan and one faces an up hill struggle. This will prove to be a restriction for a few years to come. But there is light at the end of the tunnel.

If Professor Miles is correct and we experience rising real income, then property prices will become more affordable again. This will close at least some of the gap experienced by many ‘want-to-be’ homeowners in the current climate. Add this to a growing population and we are likely to see house prices rise. We are also seeing more inward investment with activity from foreigners increasing, particuarly in areas such as London and Dorset.

Other minor ingredients will also play their part. The ‘New Buy’ scheme for example launched by the government and lenders recently has been well received thus far and allows a home buyer to purchase with just a 5% deposit. In August 2012 the government announced an £80 billion cash injection to encourage lending and the results evident within a month. Sadly lenders have not yet made it easier for more people to get mortgages, which appeared to be the fundamental reason for the influx of funds, but they have made deals a little cheaper for those who can obtain a mortgage. This view is current and evident in October 2012, but of course rates can go up or down according to market forces.

When is momentum going to build? Not just yet! But if you can’t see house prices going down in the short term, then this could be a very good time to buy. There is no doubt that the market will remain subdued for the next couple of years at least. However, the rules of supply and demand are, in the oppinion of experts, going to force house prices slightly upward. Five years from now, we should see that gather more momentum. In a recent report issued by Legal & General, they predicted that the average house price in the UK would be £254,000. That is 11.9% higher than the 2007 peak and 17% higher than the average in 2012. The report continued to predict that house prices will increase  by £12,000 a year from 2017 to 2027.

This article contains the personal views of Howard Bowes and does not constitute as mortgage advice. I’d be delighted to talk to anyone interested in the article or property/mortgage matters, please contact me on 02921 156918.

About harveybowes
Mortgage Broker and founding Director of Harvey Bowes Limited. A mortgage broking practice with bases in Cardiff & Poole, UK. We take a fresh and positive approach to mortgage broking which pays dividends for both our clients and frankly, ourselves. The team at Harvey Bowes are expert advisors in all aspects of mortgages from residential to commercial and buy to let.

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