Housing market not in a bubble say experts

Experts do not believe the UK housing market is in a bubble, despite scare stories predicting a bubble fostered largely by government initiatives for first-time buyers, such as the Funding for Lending Scheme and Help to Buy.

House prices are instead being supported by a fundamental mismatch between supply and demand that has been apparent since 2009 and could persist until 2016 or beyond, according to a variety of experts.

Property market research group Hometrack said the scale of house price increases in coming months will depend on the willingness of new sellers to come to market.

Strong UK jobs data is helping support a buoyant market, but the supply of homes for sale fell by 6.6% in January and has shrunk for five months in a row.

The number of new buyers registering with estate agents also fell in January, as is customary, but not by as much as the contraction in the supply of homes. Hometrack added that the market could get itself into a spiral where "if sellers remain slow or reluctant to enter the market, in expectation of further price gains, then the pressure on prices will build rapidly once again".

On average, house sellers are knocking 5% off their asking prices to make a sale compared with an average 7% discount given a year ago.

Recent Land Registry figures showed that house prices in London increased at more than double the rate of the rest of the UK in 2013, growing by 11.2% to £403,792 on average, while prices across England and Wales generally lifted by 4.4% to £167,353.

London chief growth driver

But while London has again been the chief driver in the growth, there is evidence of increased confidence that strong price rises are spreading elsewhere. Hometrack cited price rises in January of 0.9% in Dorset, 0.7% in Cambridgeshire and Northamptonshire, and 0.6% in Devon and Essex.

Historically, price rises first ripple out of London and into the home counties. Estate agent Savills recently forecast UK property growth of 25.2% in the next five years with London slowing while the rest of the UK catches up.

Already, areas in Buckinghamshire such as Beaconsfield, Gerrard Cross and Amersham - some of the most expensive places to live outside the capital - have been catching up with London prices. The average house price in Beaconsfield is now £918,987, for example.

Savill's predicts five-year growth between now and 2018 of 24.6% in the East Midlands, 29.4% in the South West, 30.7% in the East and 31.9% in the South East.

Few would argue the market is problem-free, however. We are back in territory where rents are at an all-time high and one British company, Nomad Micro Homes, is selling flat-pack self-assembly house kits. Borrowers have also been lengthening the term of their mortgage to cope, with 52% of mortgages arranged over more than 25 years, up from 40% in 2007.

The high level of foreign investment in prime residential property in the capital also continues to cause concern. Economic forecasting group EY ITEM Club has caused a rumpus by questioning whether Britain should limit the number of non-UK residents buying property here. It argues that London's housing market is showing signs of "bubble-like conditions" and policy makers should step in to avert a meltdown.

A separate paper from thinktank Civitas also suggests restrictions should be placed on overseas investment in London residential property to combat house price inflation and to make the housing market more accessible to the young and less well-paid.

EY ITEM Club also said that the Bank of England's Financial Policy Committee, which oversees stability, should consider a formal limit on income multiples in relation to the size of the mortgage borrowed.

In Australia, all non-residents wishing to purchase property must apply to that country's Foreign Investment Review Board, and are only allowed to buy unoccupied new property and even then, only if they can satisfy the authority that overall housing stock has increased. Similar controls are imposed by Switzerland, Denmark and Singapore.