What has 2014 got in store for the housing market?

Residential houses

Just over a fortnight has passed since the early start of the Help to Buy mortgage guarantee scheme, and it is currently too early to tell what material effect it will have on house prices, construction or mortgage lending. The launch, however, coincided with a pick-up in the UK housing market, and the latest figures continue to suggest that things may be on the mend.

Mortgage lending

The latest figures from the Council of Mortgage Lenders (CML), which are for the third quarter of 2013, show a good three months for the UK housing market, with gross mortgage lending having reached £49.3bn between July and September. This represents a five year high, with the previous peak being in the third quarter of 2008.

The figure is almost one fifth (17.6%) higher than in the second quarter, and nearly one third (32.2%) higher than the same period in 2012.

When one takes into account the fact that current house prices are some 2.8% lower than during the previous peak (according to the Land Registry’s house price data), the figure becomes even more encouraging.

According to the CML, the monthly number of property transactions averaged 90,000 between July and September.

London’s effect on the UK property market

Though prices were recently reported to have reached their pre-crisis levels, figures from the Office for National Statistics (ONS) show that UK house prices excluding London are only at 95% of their January peak. Prices in London, however, are close to 18% higher than in January, showing that the capital is pushing the UK average upwards at an alarming rate.

The average asking price for a London property was £544,231 in October; 10.2% higher than in September. This suggests not only that London prices are growing, but that the growth appears to be accelerating. Indeed, London estate agents report frenzied buying towards the end of the quarter – and agents in some areas claim to have sold nearly every property on their books.

Whilst asking prices are generally not the truest indicator of actual housing market performance, recent research from the London estate agent Hamptons International shows that the gap between asking price and purchase price is only 2.9% – lower than at any time since 2007. As we continue forward into a ‘sellers’ market’, wherein demand for housing outstrips supply, this gap is certain to narrow further.

It is clear that, if a housing boom were to happen in 2014, it would do so in London and the South East, where the majority of people wish to buy. The government and Bank of England should take steps to ensure that a property bubble in the South is averted, and that the UK property market as a whole – not just the wealthier areas – sees robust growth.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.