House Prices in UK

Last week, there was also great interest shown in the UK Housing Market. The change in attitude to the state of the mortgage industry has had a significant impact on people's perception about the future of UK House Prices.

However, although people are now talking about the potential of falling house prices, it is worth bearing in mind that for many first time buyers, the reality is that house prices are out of reach.

This article looks at why house prices are so high
Also, it begs the question - what if anything should the government do to deal with the affordability of housing? - What can government do to housing market?

Why House Prices in UK have increased

House prices in the UK have increased at a remarkable rate since the slump of 1994. With the average house price reaching £200,000 many question how long prices can keep rising. It is important to understand the economic rationale behind the UK's housing prices boom. Many of these arguments are relevant to other countries as well. Some of the main reasons include:

1. Shortage of supply.
2. Rising number of households.
3. Low long term interest rates
4. Increased flexibility of mortgages

for detailed article view: Why UK House Prices have increased

House Prices in 2007 - Rise or Fall?

There have been many reasons why economists have been predicting a gentle slowdown in UK housing prices. Groups such as Capital Economics have long argued that house prices are overvalued. Reasons for this include.

1. House prices have risen faster than earnings, making it more difficult for people to afford mortgages, especially first time buyers.

2. Increase in credit levels means any rise in interest rates is likely to have a significant effect on reducing demand for houses.

3. The value of buy to let is decreasing. This is because house prices are rising faster than rentable incomes. The returns form buy to let is becoming lower so there is less incentive for people to buy for this reason.

4. If house prices did start to slow down it could encourage speculators to sell causing a big fall in house prices.

However recent evidence counteracts these pessimistic forecasts. The housing market remains remarkably resilient with house prices rising by 10.5% in 2006. In addition The British Bankers' Association said demand for home loans was still growing. They are more than 9 per cent ahead of last year. This means demand is still strong. This suggests the moderate rise in interest rates in August had little effect on cooling the market. This is perhaps because consumers think that interest rates rises have peaked and are unlikely to rise further. This view on interest rates is shared by the Nationwide building society who have predicted that interest rates have peaked. They also predict house prices are likely to rise by 8% in the next year.House Prices 2006

The rises in house prices are likely to be fuelled by increasing number of foreign investors into the UK. Also city bonuses are rising faster than wage inflation sustaining a significant part of the house price rises. The continuing shortage of housing in key areas also shows no sign of being overcome. This shortage of supply means only a small increase in house prices are needed for significant increases in prices. However despite these factors (plus the forthcoming Olympics) there are fundamental issues which should reduce house price growth in the latter part of this year. These factors are the main issue of affordability for new first time buyers.First Time Buyers further out of reach
Many have been predicting house price falls for several years, arguing the market is severely overpriced. Yet despite these warnings house prices continue to rise and in the short term at least there seems to be no end in sight for the rise in house prices.

Mortgage Approvals Likely to keep rising

The housing market looks set for a robust start to the new year after figures yesterday showed a sharp jump in the number of mortgages approved by the main lending banks last month.

The British Bankers' Association said 77,788 people reserved a loan to buy a home in November, up almost 4 per cent on October and more than 9 per cent ahead of last year.

Mortgage approvals tend to point to the movement in house prices several weeks ahead when the money is used to complete the house purchase.

"The strength of mortgage approvals indicates that August's interest rate rise had little immediate cooling effects on the housing market," said Howard Archer, chief UK economist at Global Insight.

The BBA also revised up its initial estimate of underlying new mortgage lending to £6.7bn from what was already a record high of £6.5bn.

David Dooks, head of statistics at the BBA, said: "The high number of loans approved in November, which is not usually a strong month, suggests that the trend in mortgage lending will continue to be robust over the next few months."

The figures support other data depicting a resilient housing market after two interest rate rises this year and with economists expecting higher borrowing costs next year.

- from :Independet