Housing Market – Boom or Bust

24 February 2015

Britain’s booming housing market is in dangerous territory according to the Bank of England, who warns of the danger of ignoring the momentum apparent across the country. On the same day that it emerged that one in fifteen London homes are selling for more than £1m, Sir Jon Cunliffe, Threadneedle Street's deputy governor for financial stability, reiterated that Britain has a history of booms turning to bust, a trend that Britain has certainly witnessed more than once over the past decade.

The housing market in Britain has always brought risks of financial instability, however this concern has recently ripened as gross mortgage lending is growing and there are signs that debts are becoming more concentrated. With borrowers taking on larger mortgages, there are growing concerns that they could find themselves in trouble when interest rates inevitably rise.

Figures from the Nationwide building society showed annual house price inflation at a seven-year high of 10.9%. Cunliffe commented: "There is good reason to believe that a … combination of strong demand, weak supply and expectations of a rising market could lead to a period of sustained and very powerful pressure on house prices in the UK."

The building society’s latest analysis of the Land Registry data demonstrates that the proportion of London home sales costing more than £500,000 had jumped from 13% in 2007 to around 25% in 2013. For properties costing more than £1m, this figure has doubled from 3% to 6.5% over the same period.

However, "Earnings growth is beginning to pick up, with wage increases finally outpacing the rise in the cost of living in February," said Nationwide's chief economist, Robert Gardner. "Nevertheless, house price growth is outstripping income growth by a wide margin. The risk is that unless supply accelerates significantly, affordability will become stretched."

The above is not legal advice; it is intended to provide information of general interest about current legal issues. 
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