Housing market parties like it's 1999

The new year is starting with a bang with the number of experts expecting prices will continue rising at a 14-year high

The housing market is partying like it's 1999. September 1999 to be precise, according to the Royal Institution of Chartered Surveyors, which says the number of property professionals anticipating higher prices in the next three months is at a 14-year high.

Stocks have dwindled and the housebuilding industry is scurrying to keep up with a surge in mortgage loans as first the Bank of England's Funding for Lending scheme, and then George Osborne's Help to Buy initiative in March's Budget, electrified the market.

Even a wealthy celebrity like Prince – worth a reported £200m – might baulk at some of the prices being charged at the top end of the London market, where prices are rising 12 per cent year-on-year. The capital, where prices are supported by wealthy foreign buyers looking for a safe asset, has roared off into the stratosphere but a housing market recovery is becoming entrenched across the rest of the country too.

The City is loving it. According to Liberum Capital's Charlie Campbell, shares in listed housebuilders have surged 50-60 per cent this year and are set for further gains in 2014. "It will be hard to see rises of the same magnitude as 2013 but we still think there is a 25 per cent upside over the next year."

Ted Ayres, of housebuilder Bellway, says: "Help to Buy has acted as a big boost and a catalyst for people to come back in, but in the longer term we need lending institutions feeling comfortable about high loan-to-value loans to people at 90-95 per cent without government support."

The recovery has caught everyone off-guard, including the Bank of England. In the 12 months to last October, the latest in terms of official data, UK house prices rose 5.5 per cent, five times higher than forecasters pencilled in a year ago. London has led but prices are still 3.1 per cent higher across the rest of the country in the past 12 months, excluding the buoyant capital and South-east. Nationwide has said that prices across the country were up 8.4 per cent in the last year.


Even though inflation-adjusted house prices are still below 2007, the resurgence has raised alarms at the Bank, which has changed the rules of Funding for Lending to prevent banks recycling cheap cash into mortgage loans. Mortgage approvals are up more than 20,000 since FLS was introduced in August 2012.

Then back in March, Help to Buy fanned the flames as the Chancellor's Budget centrepiece offered government loans of up to 20 per cent on new-build homes of up to £600,000 in value to boost deposits: there have been 18,000 reservations since April.

The surge in house prices has helped overall UK growth along at the fastest pace in three years: not bad for an economy on the verge of a triple dip a year ago. "There is no doubt that it was in the back of George Osborne's mind to get a short-term fix for the growth figures," says chief property economist at Capital Economics, Ed Stansfield.

Construction – a relatively small 6 per cent slice of the economy – is set to pick up significantly this year and the latest figures show the biggest rise in new housing orders since 2007. Whether the construction industry can meet demand is a moot point, according to Noble Francis, economics director of the Construction Products Association.

When the UK needs to be building more than 200,000 new homes a year, private housing starts rose an estimated 19 per cent in 2013 to 112,000, and even after another two years of double-digit growth only 142,000 are forecast in 2015, according to the CPA's estimates. The organisation's latest trade survey reports other constraints which could push up prices: a third of builders have difficulties recruiting bricklayers and plasterers.

The Chancellor, meanwhile, basks in billions of pounds in extra stamp duty improving deficit numbers and growth figures massaged by housing growth and consumer spending. At the Bank of England, however, wary eyes will be on any evidence of runaway house prices that could pose a threat to financial stability. For the time being, at least, the party goes on.

An accident waiting to happen

Under the mortgage-guarantee element of Help to Buy, launched in October, purchasers can buy any house under £600,000 as long as it isn't a buy-to-let or second home. The Government said last week there had been 6,000 applications under this part of the scheme. How worried should we be? The equity loan part has been a success but the mortgage guarantee is playing with fire, says chief property economist at Capital Economics, Ed Stansfield. "It's insanity. The problem with it is that you are not increasing the overall stock of housing. With the first stage of Help to Buy aimed at new build, at least the housebuilders actually have to build to sell a house first. The mortgage guarantee scheme is an accident waiting to happen."

Reasons to be bullish

1. Massive shortage of properties

2. Mortgages are becoming easier to come by

3. Economy growing, confidence rising again

4. Current super-low interest rates

5. Falling unemployment In the UK as a whole

Reasons to be bearish

1. Interest rates could rise later this year

2. Bank of England could pull Funding for Lending

3. Price rises outside the South East are patchy

4. Young people can't get on property ladder

5. Pay rises failing to keep pace with house prices

Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before