A survey published by The Royal Institute of Chartered Surveyors (RICS) this week reported that UK house prices rose faster than expected in May although are likely to increase less over the next year.
Surveyors have reduced their expectations for house price growth in the UK, despite a continued shortage of homes for sale with price rise estimates for London dropping from 9% a year in March to less than 5% in June of this year.
Simon Rubinsohn, chief economist at RICS said: "What we are really seeing is some of the very strong upward momentum starting to come off the housing market as lack of supply, higher prices, more prudent lending measures and some of the talk from the Bank of England are creating a level of caution among sellers and buyers."
RICS also report that media speculation of a housing bubble in the UK is misleading vendors in the north of the country as price growth in London and the Southeast has increased at a much faster pace in the last 18 months.
Taking the hyper-active London market out of the equation and the figures tell a very different story. The capital has benefitted from an influx of wealthy buyers and lack of supply and so prices have soared. The rest of the UK has seen more moderate 1.3% rise in house prices over the last year while Wales, Scotland, the Northeast and Northwest all showing price falls.
North-south divide still very evident
Richard Donnell, director of research at Hometrack said: "London is having a distorting impact on figures but there is no doubt that levels of confidence are improving and prices are rising in the north, though we must remember that prices are coming up from a very low base in the mid to lower end of the market."
Talk of a bubble in the UK property market is being greeted with speculation from real estate professionals in the north of the country who claim that some vendors are over-optimistic in their price expectations.
Derek Coates of Venmores in Liverpool commented that "there’s a definite upward pressure on asking prices although the threat of a housing bubble is overstated in this region. Neil Foster of Foster Maddison in Newcastle upon Tyne added that "the mythical concept of a housing bubble is evidently confined to within the M25."
Stephen Holland of the Cumbria branch of Carter Jonas insists that "the north-south divide remains very much in evidence and the press speculation of a national house price boom is not helping stabilise the northern market" while Greg Davidson of Graham & Sibbald in Penrith believes "the statistics heavily reported in the media are very misleading for the majority of Scotland where transaction levels are mostly improving but values have generally not changed much in most areas."
In its latest quarterly survey, the RICS says new instructions have contracted for the fifth month in succession and new buyer enquiries are now rising at the slowest pace since February last year.
Media speculation has dampened price predictions
RICS’ chief economist Rubinsohn states that "RICS respondents are now projecting average annual house price inflation at the national level of 5% over the next five years, which has edged down fractionally in recent months. In contrast, price expectations over the same time in London have fallen from a peak of just over 9% as recently as March to less than 5% currently".
The strength of the housing market has raised questions about how long the Bank of England can refrain from raising interest rates although the bank has already said it would prefer to deal with any overheating through mortgage controls first.
Mortgage approvals have been falling in recent months and the RICS survey has shown falling numbers of new homes coming on to the market indicating that measures introduced under the Mortgage Market Review (MMR) are starting to have an impact.
Surveyors’ expectations of house prices over the next year were also at their lowest since December. Josh Miller, senior economist at RICS commented that "part of it might be the impact of the MMR, part of it might be because there has been a lot of bubble talk in the media and part of it is the Bank of England’s rhetoric recently which would have shaped expectations to some extent."
The Bank of England is expected to announce new mortgage controls later this month after its Financial Policy Committee meets on June 17.
- Friday 13 June 2014