The Bank of England has announced that the base rate is to remain at 0.5% for a record 54th consecutive month. The decision comes following heightened demand for property as buyers hurry to invest in the housing market before prices rise to an unachievable high.
Although the property market has historically seen a rise in interest during the early summer months, new figures have shown that demand for property continued unabated during the usually quieter month of August. Research carried out by Hometrack, a property research company, suggests that contrary to the historic reduction in purchasing activity at this time of year, there has in fact been a rise in movement within the market.
Hometrack’s figures suggest that demand is unlikely to reduce in the short term, as they estimate that the average time a property is being marketed before a sale is agreed stands at 8.1 weeks, a timescale that is reducing month on month through-out the year. Hometrack’s director of research, Richard Donnell, said: ‘All the key market indicators, such as time on market and the proportion of the asking price achieved show underlying housing market conditions are at levels not seen for six years.’
Recent figures provided by Nationwide Building Society suggest that the average house price currently stands at £170,514, a slight reduction on figures from July, where the average had been estimated to be £170,825. Despite this, Nationwide’s figures also noted that the average has risen 3.5 per cent year on year, and many experts in the market see this as a sign that a boom in prices could be just around the corner.
It has been suggested that one reason for the sudden surge in activity has come about due to fears that prices will soon reach a level unachievable to many in the market. In addition, the continued reduction in interest rates by many lenders, and the introduction of the Help to Buy scheme by the Government have further tempted many back to the market.
In reaction to comments by economists to the potential issues the Help to Buy and Funding for Lending schemes could cause for the markets in the future, Bank of England governor Mark Carney has staunchly warned that he would not stand by and watch a housing bubble drag the economy back down to the lows of 2008. During a recent speech to business leaders he made it clear that new powers granted to the Bank by the Government would be utilised to stem the flow of lending if required, so that banks would not need further bailing out in the future.
Indeed, the fear of a housing bubble has caused much caution amongst mortgage market professionals. A recent survey completed by the Intermediary Mortgage Lenders Association claimed that as many as 60 per cent of lenders and mortgage advisers felt that property prices could rise as high as 11 per cent by 2016. And this does not appear to be too unrealistic, as Land Registry data for the first 6 months of 2013 suggests that if prices continue to rise as expected, they will have reached an increase of 2.7 per cent by the end of the year.
Robert Gardner, chief economist for Nationwide, acknowledged the reality of fears within the market that increases in value and demand could prevent many new buyers from being successful. He said: ‘While there have been encouraging signs that house building is starting to recover, construction is still running well below what is likely to be required to keep up with demand. The risk is that if demand continues to run ahead of supply affordability may become stretched.’
As rates remain at a record low and demand for housing increases whilst prices continue to rise, it may be time for contractors looking to invest in property to move sooner rather than later.
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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