Recent rises in house prices over consecutive months has provided a welcome change in the UK. The good news is not restricted just to London as in Northern Ireland, according to The NI Residential Property Price Index, residential property prices rose by 2% between the first and second quarter of the year. However, prices are still 3% lower than this time last year. Even for the untrained eye, a rise in house prices can no longer be taken as an overwhelmingly positive occurrence, and fears of another ‘housing bubble’ remain legitimate. It has long been realised among the populace that stoking up new housing boom will exacerbate not mitigate government debt.
The Daily Telegraph has put forward that Mark Carney, the incumbent Bank of England governor from Canada, ‘may have to prescribe the medicine for the housing bubble.’ Indeed this is no small feat. On the one hand, the fact growth is slowly seeping back into the UK is a refreshing respite from the past six years of ongoing ‘doom and gloom’ in the housing sector. Yet, there are concerns of the multitude of dangers which accompanies these changes. Carney, for his part, has made some crowd-pleasing statements and has vowed, ‘to personally intervene,’ to prevent a new bubble.
So, what is the likelihood of a new property bubble? Are we really heading down this slippery slope once again? A surge in mortgage lending is predicted by economists, and it is expected 700,000 mortgage loans will be taken out this year – the largest since 2009. This move has been stimulated by increased confidence in the sector as well as The Banks Funding for Lending Scheme (FLS) and the Treasury’s Help to Buy initiative which dramatically reduced interest rates to a record low of 3.17% in July.
Nida Ali, an economic advisor to the EY ITEM Club has spoken out saying: ‘the sharp decline in residential investment has been a sizeable drag on the economy in the past few years, but if this reverses, it has the potential to provide some solid support to the recovery.’ This would suggest, these new initiatives are essentially just what the doctor ordered. However, they have not been immune to criticism.
The Help to Buy Scheme, the brainchild of George Osbourne, has been denounced by a think-tank as a tool to drive up house prices and make home ownership even less accessible. Furthermore the (FLS), which permits lenders to borrow money cheaply from the Bank of England has caused net-lending to fall by £1.8bn since its launch last year.
Despite the daily bombardment of information we receive from the media, embellished with economic vernacular and full of contradictions, accusations and statistics: the question has not been answered, are we freewheeling into another housing bubble? And, what can we do to stop it? Or is the answer simply to wholeheartedly put our faith in Mark Carney, who seems to be saying all the right things. Nevertheless, I am somewhat weary to do this…. even if the new superstar banker, does resemble George Clooney.