The government has introduced a number of schemes to help first time buyers onto the property ladder and it has been working. The amount of properties being sold is increasing as well as the amount of mortgage applications being approved.
Of course there are always going to be streets with expensive price tags which do make them off limits to the average family. If you are looking to buy a home in London, you will need £2 million or above otherwise you are unlikely to be able to find a property in some of the most expensive roads.
Many are warning that the constant increase in property prices may lead to another property market crash. It is believed that the helping hand the government has given in terms of the Help to Buy scheme could be one of the reasons for this. With new buyers in the market, demand for property has increased and therefore sellers can increase their asking prices. Some economists are even predicting that the average asking prices will have increased by at the end of next year could be as much as 15%. In property hotspots such as London, prices here are increasing by the week. It is important with all properties to have property insurance but if you are paying a lot of money for a home, it may be worth covering the contents of your home. The more space the more furniture that will need to be replaced in the event of an unforeseen circumstance.
The Council for Mortgage Lenders has said there has been a significant increase in the amount of mortgage applications during May which reflects other surveys that suggest that the housing market is on the move again. Rightmove is a property website and they have stated that, “All regions are up year on year for the first time in nearly three years contributing to the positive national picture.”
Although there are many who are concerned about another crash, there are also reports that suggest the UK property market is still a long way off from this situation. Property prices peaked at a 15% increase so the rise that has been predicted by experts means we will just see prices at this peak again. Also, compared with 2007 there are fewer buyers who are buying at these prices. This means that if there is a crash, not as many people will be affected.
Another issue affecting the property market is the lack of housing. This is also maintaining high property prices as buyers tend to be fighting for the same properties. The amount of new properties being built is extremely low and the rate of building hasn’t been this low since in the 1920’s. Data from the construction industry shows that during May the amount of output generated was actually 5% lower than it had been during 2012.
Private builders however, are seeing an increase in profits due to the Help to Buy scheme and other schemes that are helping fund first time buyers. Although they are making more profit they are not building homes as fast.
Banks are now restricted in terms of some of the loans that had been available before the crash in 2007. They are now better funded to ensure they can deal with shocks that weren’t expected and the fact that there are not very many new homes being built, there is a reason and justification behind the high property prices.
George Osborne commented on the situation saying, “The purpose of [Help to Buy] is to repair an impaired mortgage market that is clearly not functioning property. I don’t think the situation at the moment looks like an asset priced bubble.”
Rob Wood is an economist who was working at the Bank of England at the time of the last crash. He is worried about what will happen to property prices after 2015, especially if wages remain stagnant. “House prices thus reach the heart of Britain’s current policy paradox. Loose monetary policy works by boosting asset prices and encouraging households and firms to spend now and save later. That boost can prevent depression. But it can only delay the inevitable adjustments of saving, spending and house prices.
“To keep the economy alive today, policy has to do the opposite of what is needed to keep it alive tomorrow. The positive way this plays out is that UK adjustment is less painful in the future. Eurozone austerity is due to ease off next year and the US will be through the fiscal cliff. With a stronger world, UK adjustment could be less difficult in the future.”
Overall, building more properties will help reduce the increasing asking prices and it will also increase jobs and therefore lower the amount of unemployment in the UK. With new projects being made available this may lead to pay rises and even more people can start purchasing homes to really get the property market kick started.