House price growth of 17% - a retirement dream

I remember the date well which for me says something as I tend to need to write things down to remember them in detail. Many years ago today we bought our first house. A home of our own to build our life together.

 

A home can be many things too many people – a place to live, raise our children, a means of funding retirement and so forth. Hearing news that house prices are expected to rise by 17% on average across the UK over the next five years is always reassuring to hear for those funding retirement for example but there is the presence of mortgage rate rises which could impact on this growth and ultimately is the growth sustainable and needed?

 

 

Mortgage rates are apparently the gloom of the growth. A potential rate rise, if too quickly, will curtail house price growth. On the flip side, if rates remain low for too long, there is a risk that prices will rise too far, creating further affordability issues. There needs to be a gradual interest rise that curtails to an extent. A good move introduced last year was the stress testing for affordability which did cap the amount people were allow to borrow based on their income and has prevented runaway price growth but forecasted 17% growth raises a certain query whether the cap did anything at all.


Annual transaction levels, at just over 1.2m this year, are expected to reach 1.3m in 2020, far short of the pre-crunch norm of around 1.7m, as a lack of affordability slows demand.

In October 2015, house prices nationally increased by a modest 0.6% (well at least it was growth) with the annual price growth currently at 3.9% (according to Nationwide). The most interesting point is that the average house price has now exceeded the levels of 2007/8.

 

 

 

Over the past five months annual price growth has remained in a fairly narrow range between 3% and 4%, broadly consistent with earnings growth over the longer term. While this bodes well for a sustainable increase in housing market activity, much will depend on whether building activity can keep pace with increasing demand. And this is a big but!

 

So with house prices increasing and certainly more than income there is a big risk to the UK economy and hence the interest rate threat which could temper the growth to acceptable risk levels. Though in the meantime at least checking mortgage fees will be simpler following a new tariff created by the Council of Mortgage Lenders – standard terminology, consistent terminology across 85% of lenders and everything else legal you can think of.

 

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

 

Enjoy the weekend

Lee