There appear to be two distinct camps of opinion when it comes to whether the UK is heading towards a property bubble. Forecasters at Ernst and Young maintain that the property market's recovery is not debt-fuelled with predominantly cash purchases driving house prices upwards. On the other hand, the Bank of England continue to fuel fears of a property bubble with negative reports about how people are stretching themselves to the limit by taking out larger and larger mortgages in order to afford rapidly increasing prices throughout the country.
So what are the facts? What proportion of those buying UK property are taking out mortgages and how much is it biting into their income – what is the bottom line?
Ironically, the Bank of England's seasonally adjusted mortgage approval statistics for February 2014 contradicts their fears that people are continuing to over borrow by showing an 8.8% drop in the total value of mortgages approved for property purchases compared to those in January. Indeed, the main investor interest in UK property, particularly in London is coming from the Asian market – specifically China – and these investors are purchasing at the top end with cash.
There is also speculation that the tighter lending criteria under the Mortgage Market Review (MMR), already implemented by many lenders and mandatory from 26April 2014, may lessen buyer demand by making it harder to get the required mortgage. If this affects a substantial number of potential purchasers then it could drive buyers out of the market at an alarming rate.
So in essence, the property bubble seems to be completely defined by the fact that house prices have risen by an average of 7.3% nationally. However, with ever increasing restrictions making it more difficult for the average person to obtain a mortgage and significantly improved interest in the UK property market from foreign investors with massive purchasing power, the "bubble theory" would appear to be unsubstantiated.
It's almost paradoxical that the UK Government's "Help to Buy" scheme which seemed to provide a solution to those seeking to get onto the property ladder is likely to result in more people either shying away from the deal through fear of becoming over burdened with debt or being turned away by financial institutions for not meeting more and more rigid lending criteria.
- Thursday 17 April 2014