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Treasury Watchdog Sounds Alarm Over Runaway Property Market

Treasury Watchdog Sounds Alarm Over Runaway Property Market

Treasury Watchdog Sounds Alarm Over Runaway Property Market

  • Office for Budget Responsibility (OBR) says speculators are inflating property prices
  • Average price of a London home is expected to jump from £458,000 (GBP) to £650,000 (GBP) by the year 2020
  • Average price of a UK residential property reached £254,000 (GBP) in January

Following on from last Friday’s post about the Government’s independent watchdog the Office for Budget Responsibility (OBR), the Treasury’s chief watchdog, Robert Chote has spoken out.

Soaring UK property prices are being inflated by speculators banking on further gains, causing Robert Chote, head of the Office for Budget Responsibility (OBR), to issue a warning that the UK is on the verge of a dangerous housing bubble.

Mr Chote told Treasury Select Committee MP’s: “With very rapid house price increases in some parts of the country you might see bubbly activity where people are willing to buy stuff off plan or not intend to live in it. The surge in prices is partly down to soaring demand, driven by rising confidence, increased lending, and government schemes such as Help-To-Buy combined with a general lack of supply. You can explain the increase in house prices by fundamentals without having to resort to saying there is a bubble going on. That doesn’t mean to say there may not be some bubbly components to what is going on in the housing market in particular parts of the country.

Treasury Watchdog Sounds Alarm Over Runaway Property Market as average price of a typical residential property climbed to £254,000 (GBP) in January 2014 – an increase of 6.8% in a year

Treasury Watchdog Sounds Alarm Over Runaway Property Market as average price of a typical residential property climbed to £254,000 (GBP) in January 2014 – an increase of 6.8% in a year

Official figures show the average price of a typical residential property climbed to £254,000 (GBP) in January 2014 – an increase of 6.8% in a year.

Residential property prices were up:

  • 13.2% in London
  • 7.1% in the South East
  • 6.9% in Wales.

As already reported on Spotlight, the OBR expects house prices to rise by more than 30% in the next five years, meaning that the average price of a typical residential property in London is expected to jump from £458,000 (GBP) to £650,000 (GBP) over the next six years.

Mr Chote insisted that the OBR was not “taking a view that house prices are over or undervalued, house price inflation should cool from 8.5% this year to 3.7% in 2017 and 2018.

Steve Nickell, an economist who sits on the OBR with Mr Chote, said: “A bubble arises when demand is being driven by people wanting to get in because of expectations of price growth rather than for somewhere to live. The house price to income ratio has been growing for the last 40 years but that cannot go on forever because everything you consume would become housing and there would be nothing else left.’

But David Ruffley, a Tory MP on the Treasury committee, said forecasters always expect a ‘benign return to equilibrium’ and fail to predict the cycle of boom and bust.

UK Residential Property Prices Continue To Increase

UK Residential Property Prices Continue To Increase

UK Residential Property Prices Up For Seventh Month In A Row

Residential property prices in the UK have continued to increase for a seventh straight month in August, according to the latest house price index released by mortgage lender Halifax.

The growth in property prices suggest that the government initiative designed to kick start the property market is indeed working, to support the demand from willing first-time and next time residential property buyers, although there are fears that the UK could see another property bubble emerging, because property prices are rising so quickly.

Halifax said that residential property prices increased by 0.4% from July 2013 and were 5.4% higher than 2012, providing the UK residential property market with the biggest annual price increase since June 2010.

In July, residential property prices increased 0.9% from June 2013, and were up 4.6% from July 2012.

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Rental Yields Drop As UK Residential Property Prices Rise

Rental Yields Drop As UK Residential Property Prices Rise

Property Price Increases Wipe Out Landlord Rental Yields

Residential property prices are rising so fast that they are outstripping rental price increases and some private sector landlords’ rental yields are suffering.

Landlord rental yields in the UK private rented sector (PRS) have fallen almost everywhere in the UK, and any rise in the rental prices are being outpaced by rising residential property prices.

Countrywide have said that in May 2013, rental yields declined everywhere in the UK except in the East of England (up 0.2% to 6.2%) and Scotland (up 0.1% to 5.8)

Rental yields in the South-West and the Midlands remained the same at 5.7% and 6.5% respectively. The greatest rental yields in the UK PRS are being achieved by landlords who own rental properties in Wales (6.6%), the Midlands (6.5%) and the North (6.4%).

Average monthly rents on two- and three-bedroom properties in the UK private rented sector increased up by 0.5% and 0.3% in May to £770 (GBP)and £884 (GBP) respectively, but rental prices for one-bed properties fell by 0.6% to £674 (GBP) and rents on four-bed properties were also down by 2.1% to £1,363 (GBP).

Wales had the greatest increase in average monthly rental prices, up 4.9% on April 2013, followed by Scotland (up 2.2%), the North (up 1%) and South-West (up 0.5%).

Despite some regional increases, the average monthly rental price in England, Scotland and Wales fell by 0.2% in May 2013, but rents are still 0.8% higher when viewed year-on-year.

The Midlands has seen the greatest decrease in average monthly rents, down 1.4% month-on-month, followed by the South-East and central London, both down 1.3%. Scotland has the lowest average monthly rent at £617 (GBP) per calendar month (pcm) and central London the highest at £2,340 (GBP) pcm.

Countrywide have taken their data from over 5,000 rental properties in the UK.

Nick Dunning, Commercial director at Countrywide said: “Despite the decrease in yields in May, rental yields remain strong and are providing attractive returns for buy-to-let property investors compared to other types of investment.”

Average Residential Property will cost

 £267,000 by 2018

Average UK Residential Property Prices Increase

Average UK Residential Property Prices Increase

Average UK residential property prices for 2014

are estimated to be 2.3% higher than in 2007

Forecasts from the Centre for Economics and Business Research (CEBR) suggest that a typical residential property in the UK will cost an average of £227,000 (GBP) in 2014, overtaking the average peak price of residential property observed at the height of the housing bubble in 2007, for the first time.

The CEBR also predict that the average residential property price will be £222,000 (GBP) by the end of this year, 1.4% higher than average property prices reached in 2012.

By 2018, the CEBR expect the cost of a typical residential property in the UK to average £267,000 (GBP).

In 2014, the CEBR estimate that the Government’s Help-to-Buy scheme could raise UK property prices by up to 0.8% without having any appreciable impact on the current housing supply.

However, if the upward trend in residential property prices continues, it could lead to an additional 4,800 residential properties being built in 2015.

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Property Values To Remain Flat In 2013

Residential property values increased by an average of 1.3% in December 2012 but according to the latest figures released by the Halifax, property values are likely to end 2013 at levels close to where they began.

UK Residential Property Values Not Expected To Change In 2013

UK Residential Property Values Not Expected To Change In 2013

The Halifax House Price Index revealed an average residential property price of £163,845 (GBP), up from £161,795 (GBP) in November 2012.

Over the course of the year, residential property values have remained little changed with six monthly rises and six decreases month-on-month.

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What’s in store for the UK residential property market in 2013?

What's In Store For The UK Property Market In 2013?

What’s In Store For The UK Property Market In 2013?

Many of the predictions made by property analysts have so far been reasonably positive in that the state of the UK property market can’t really get much worse.

2012 was a rollercoaster kind of year with the Queen’s Diamond Jubilee and the Olympic and Paralympic Games having an effect on the market.

But overall UK residential property prices and property sales have been fairly stable, probably ending the year just higher than where they started, although by how much depends on whose figures you look at.

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UK residential property appears to remain stuck in a buyers’ market at the moment, with average residential property asking prices falling for the first time since January 2012, but there are a number of regions in the UK where residential property is becoming less affordable for working would be home buyers.

A study by the UK mortgage lender, Halifax, compared residential property prices with localised pay levels and found that the London Borough of Brent to be the least affordable place to buy a house in the UK, followed by Oxford in second place.

The average price of a residential property in Brent is 8.8 times the average local income, while in Oxford it is 7.6 times greater.

Estate agents in Oxford say a shortage of suitable housing stock in the city has pushed prices up, while residential home buyers have struggled to secure an affordable mortgage since the onset of the credit crunch.

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