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UK Housing Bubble Real Possibility in 2021? | CMME Explains

UK Housing Bubble Real Possibility in 2021? | CMME Explains

March 23rd, 2021

In June 2014, we wrote about the artificial UK housing bubble that had been warned by the International Monetary Fund (IMF), at the time the market saw house price inflation that was becoming increasingly widespread.

The Fund stated that unless measures were introduced “early and gradually” by the Bank of England, there could be a detrimental effect on the housing market.

Now we ask, are we about to see an artificial UK housing bubble on the horizon?

What’s In The Blog?

  • What’s Been Happening In The Market?
  • The Market As It Stands
  • Hear From Simon Butler, The Head Of Mortgages At CMME
  • Useful Resources

What’s Been Happening In The Market?

In the last year, it’s been possible to witness the housing market defying expectations and the wider economic downturn. Since the pandemic began in March 2020, the housing market has seen house prices hitting a four-year high in November and a stimulated and active year. But why?

It’s impossible to talk about the stimulated market without discussing the Stamp Duty holiday introduced last July by Chancellor Rishi Sunak as a part of the government stimulus package in the height of the pandemic.

However, the risk adverse lenders who withdrew many of the more accessible mortgage products, like 95% and 90% loan to value (LTV) mortgages ensured that this latest boom was driven by wealthier homeowners with many first-time buyers and those with smaller budgets are left feeling excluded from this bolstered market.

The Market As It Stands

According to the Bank of England, in Britain, two thirds of households own the house they live in; half of these are still paying off their mortgage. The remaining third of households are renters, split fairly equally between private and social renting.

How would a housing market bubble effect the wider economy? The housing market is closely linked to consumer spending, the Bank of England explain, when house prices go up, homeowners become better off and feel more confident. Some people will borrow more against the value of their home, either to spend on goods and services, renovate their house, supplement their pension, or pay off other debt.

When house prices go down, home-owners risk that their house will be worth less than their outstanding mortgage.  People are therefore more likely to cut down on spending and hold off from making personal investments.

Some critics of the stamp duty holiday have argued that its existence and more prominently, its extension have created a bloated and false economy in the housing market, arguing that it should be scrapped all together.

Others have argued that the extension creates a reasonable boon to homebuyers who may be hesitant about otherwise moving forward with their mortgage plans in the midst of the pandemic.

Here’s What Simon Butler, The Head of Mortgages at CMME, Had To Say Ahead Of The Budget Announcement:

“As the chancellor plans to extend the stamp duty holiday, this can only be a positive thing for those caught short by the previous announcement. In particular our self-employed client base has struggled to take advantage due to the IR35 implementation and uncertainty around renewals of contracts and job security.

The key reason for suggesting moving with haste is that there is currently no clear sign the extension will cover a full three months for all applicants. As a positive for self-employed that can now see a clear path forward, in terms of securing work and mitigating concerns after settling their post-IR35 affairs, this news provides a chance to take advantage of the holiday.

The timing also coincides with mortgage lenders offering a larger range of 85-90% mortgage products, along with reductions in interest rates to entice buyers back to market.

Many of us will be watching with keen interest to hear what else the Chancellor has in store for the next 6 months. It is hoped that further financial incentives will be offered to boost the economy, as national optimism hesitantly returns with the Governments lockdown exit plan taking shape”.

What Else Is Stimulating The Market?

As well as an extension to the stamp duty holiday, the government have a plan in place for the mortgage guarantee scheme, for reference this will mean:

  • Borrowers can purchase at 95% up to a property value of £600,000
  • The Government will guarantee a portion of the loan to aid lenders in mitigating risk
  • It’s for all borrowers to access, not just first-time buyers
  • It can be used on older properties, similar to the previous Help to Buy 2 scheme

The chancellor has already stated he will do “Whatever it takes” to ensure the future of the economy and the introduction of several schemes for the property and mortgage market could ensure current and potential homeowners do not have to derail their plans due to the pandemic.

Useful Resources:

Whether you want to talk specifics or are just after some general advice, CMME can help. Speak to us today on 01489 223 750 for a completely free, no-obligation mortgage consultation. Or click the button below.

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