HOUSING MARKET BUBBLE SET TO BURST – Are we about to see yet another housing market crash that could result in thousands of homeowners having their home repossessed?
Some financial experts feel that we are once again facing a financial disaster as property prices continue to soar due to low interest rates, higher borrowing allowance and the Government’s ‘Help to Buy’ scheme for first-time buyers.
Currently the market remains buoyant and the number of repossessions at an all-time low thanks mainly to the exceptional low cost of borrowing.
Unfortunately low interest rates historically have the effect of lulling people into a false sense of security that results in them thinking they can take on and sustain larger mortgages.
Yesterday the Council of Mortgage Lenders (CML) declared that the era of exceptionally low interest rates is about to come to an end and once this happens the number of repossessions will rise resulting in a housing market crash.
With the Bank of England’s base rate remaining at 0.5% high street banks have been able to take a more lenient approach to those already falling behind with their mortgage payments; however a rise in the base rate would force banks to take measures to enforce mortgage payment or repossess the property.
According to the CML it expects some 30,000 repossession this year; a figure that remains on the low side when you consider that over 75,000 homes were repossessed in the recession of 1991.
Furthermore the CML stated that house prices will continue to soar by as much as 44 per cent in the next five years if interest rates remain low; such a rise will simply squeeze out future generations from their ability to own property.
CML released a forecast projection that stated the average home in England, at £85,500 will rise to a staggering £332,000 by 2020, making it impossible for the next generation to get on the property ladder.
In London the price rise is expected to be even more extreme with the average home increasing in value over the next seven years by as much as £200,000, making the average house price over £650,000.
The National Housing Federation has also stepped in stating that England’s housing market is not only dysfunctional but clearly broken.
“With house prices set to rocket by 2020, an entire generation will be locked out of home ownership forever and be forced to rent for life.” David Orr, The National Housing Federation Chief Executive
The Royal Institution of Chartered Surveyors (RICS) feels that unless more new homes are built then the housing crisis will continue to get worse. Currently the number of new homes being built remains treacherously below the numbers required in order to keep up with growing demand.
The RICS further states that the last set of figures indicates that some 106,500 new homes were built in England last year but the figure should have been 240,000 if supply was to keep up with demand.
At the current rates of growth more people could be forced to move north as it is likely that only the northern areas of England will provide housing at a cost of below £200,000 by 2020.
The increase in housing prices will benefit a few, most notably landlords, for those with the means to buy property now will see a greater demand for tenants as the younger generation will have no choice but to rent; this in turn will see a massive rise in the cost of renting.
CML predicts that the average cost of renting a private home will increase by as much as 40 per cent a year leaving tenants trapped in the rental market with no prospects of ever owning their own homes.
With the current levels of demand, coupled with reckless mortgage lending which now allows potential homeowners to borrow 95 per cent of the asking price, the accumulated debt is likely to cripple Britain yet again; although this time round, considering the level of debt Britain currently holds, could well tip Britain over the precipice.