Property prices on the rise, but what happens next?

By May 5, 2014House prices

uk house prices in 2014For the first time in four years, the rate at which house prices are rising has hit double digits. In the year so far to April, house prices rose at a rate of 10.9 per cent, which is the first time we’ve seen double figures since April 2010 and the fastest increase overall since June 2007.

The news comes as UK financial provider Nationwide releases figures from their month on month comparison of UK house prices. However, not everyone is so convinced, as the Land Registry who are more closely involved with the actual transfer of ownership between people, have said that they actually saw a drop in the price of houses being sold in the first quarter of the year of around 0.4 per cent.

Still, for the most part it appears to be good news for the British housing market, as sales, asking prices and prices paid appear to be largely on the increase in all parts of the country.

London prices

The figures are still showing a stark contrast between London and the rest of the country as we enter the second quarter of 2014. Prices in the capital are in the region of 20 per cent higher than they were before the economic crash of 2007/08. However, across the rest of the country prices have only risen by a moderate amount since the crash, and are still sitting at about 2 per cent lower than the pre-crash peak valuations.

Nerves at the Bank of England

Despite most being happy about the rejuvenation of the UK property market, the Bank of England is taking things steady and expressing concerns about the long term implications of these changes. Deputy Governor, Sir Jon Cunliffe, warned the banking industry to be cautious about the momentum, commenting that it could, and has previously, ended with a crash. Addressing an industry dinner, he said,

“It would be dangerous to ignore the momentum that has built up in the UK housing market since the spring of last year. This is a movie that has been seen more than once in the UK”

He said housing was very much on the Bank of England’s radar right now, and that tough rules for borrowers needed to be maintained.

£1 million homes by 2040?

Almost simultaneously, Shelter and KPMG have released research that predicts house prices will almost quadruple to an average of more than £900,000 over the next two decades. The research suggested that these high prices for homes would see more than half of all 20 to 34 year olds living with their parents as the property market makes it impossible for them to move out of home.

Being locked out of the housing market is going to be difficult, but those most at risk from these rising house prices are without doubt those who have already bought. Despite the Bank of England keeping interest rates at record lows to help stimulate economic growth over recent years, rising house prices means they will eventually have to consider increasing the base rate again. This will see millions of homeowners facing increases in their mortgage payments, which could stimulate a spate of defaults and repossessions over the next few years.