What’s on the horizon?

The housing market is set for big changes in 2014
The housing market is set for big changes in 2014

THE rapid pace of growth in property values in some parts of the country has sparked fresh debate over where the housing market could be heading next.

A slew of reports have pointed to particularly strong increases in property prices this year so far.

Building society Nationwide recently reported that annual house price growth is back in double digits for the first time in four years, with a 10.9% year-on-year hike taking average property prices to £183,577 on average.

Meanwhile, property analyst Hometrack has said that home buyers are now paying nearly 97% of the asking price of a property, marking the highest average percentage seen in nearly 12 years.

The rapid growth in property prices has fuelled speculation that the Bank of England could take some steps to slow down the market a bit.

The Bank’s deputy governor for financial stability, Sir Jon Cunliffe, recently warned that it would be “dangerous” to ignore housing market momentum.

Respected international think tank the Organisation for Economic Co-operation and Development (OECD) has also just warned that action may be needed to cool the market.

So why have prices been growing so strongly in some areas?

Many experts have put the rapid increases down to a mismatch between the growth in the supply of potential buyers coming to the market and the growth in the number of homes for them to choose from.

A lack of supply isn’t just being seen in London – a recent report from website Rightmove quoted one estate agent from Bristol who said strong competition for homes is prompting properties to be sold for 3% above their asking price.

Demand from would-be buyers is said to have been boosted by improving consumer confidence in the economy, mortgage rates which are still very cheap by historic standards and Government mortgage support schemes such as Help to Buy.

Help to Buy, which offers first-time buyers and home movers a helping hand to buy a home with a 5% deposit, is said to have helped to unleash some “pent-up” demand which has built up as people with smaller deposits found it tougher to get a mortgage deal following the economic downturn.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), says prices are likely to continue edging up in the coming months.

He says: “There is a fundamental problem in the market, which is there isn’t enough stock.

“There are a lot of new-builds coming on the market, but it still doesn’t make up for the rise in pent-up demand. It’s that imbalance that’s driving up prices.”

Despite the rapid price increases being seen in some areas, there have also been some signs that the momentum in the property market might be starting to cool slightly, although whether this is temporary or the start of something more significant is unclear.

New, toughened mortgage lending rules came into force recently under the Mortgage Market Review (MMR). They mean that mortgage applicants will be probed more thoroughly about their spending habits.