Demand in UK housing market

Despite a 5% fall from January figures, the Council of Mortgage Lenders (CML) reported a strong year-on-year growth, after low mortgage rates were implemented and demand for homes fuelled lending [1].

Mortgage lending jumped 30% in the 12 months to February to £17.6bn, according to figures from banks and building societies [1].

The £17.6bn total compared with £13.6bn the same time last year, which shows the highest lending in a February since 2008, when the financial crisis started [1].
However, the Bank of Ireland warned that the housing market is overheating. The Bank’s CEO, Des Crowley, said: “We’re conservative in the London market, where it is quite heated, and it is difficult for first-time buyers in particular to get onto the housing ladder in the London area” [2].

Although housing growth has been strong, Crowley is worried about the potential for interest rates to stay at rock bottom for years to come, or even to fall into negative territory, which would be an incentive for banks to lend more money.

Some economists have said that the Budget provided disappointing incentives and that Chancellor, George Osborne, “missed a trick” in assisting housing supply, and should have set out some robust measures to force councils to identify land for building and turn it over for development [3].

It is also thought that Osborne could have relaxed stamp duty by making the seller responsible for it at a flat rate across the board.

UK housebuilder Berkeley Group described the UK as “one of the world’s highest property taxation regimes”, with the stamp duty surcharge for second homes and buy-to-let properties scheduled to take effect from April [4].

However, the CML’s Economist, Mohammad Jamei, said the annual rate of growth was in line with the figures for the closing months of 2015: “The recovery is being underpinned by market fundamentals in the UK, as wages grow and unemployment falls, helped by government schemes and competitive mortgage deals,” he said. Although it is the affordability pressures that continue to weigh on activity, combined with the low number of properties on the market [4].

[1] The Guardian. ‘Demand for homes fuels 30% rise in mortgage lending’.
[2] Telegraph. ‘Bank of Ireland fears London’s housing market is overheating’.
[3] City AM. ‘Budget 2016: George Osborne has become antagonistic towards the housing market’.
[4] This is Money. ‘Upmarket builder Berkeley Group says UK property tax hikes has led to slowdown in transactions, but stays upbeat for full year’.