With the Bank of England raising interest rates in recent months, many investors have started to question the long-term sustainability of the UK housing market. Could there be a housing crash on the horizon?
During 2005 and 2006 the UK saw some very low interest rates, with decisions being taken by the Bank of England’s Monetary Policy Committee to keep the base rate at 4.5%.
By August 2007 the Bank had decided to react to the perceived threat of inflation to the UK economy. Interest rates had risen to 5.75% in an attempt to allow the housing market to cool down and to restrict consumer spending.
With some areas of the UK having seen annual house price inflation running at more than 25% in recent years, it had seemed that the UK was at the centre of a property boom. Now, some investors are questioning whether higher interest rates might lead to a housing crash.
It seems that the UK housing market is at something of a crossroads. Some point out that house prices are unlikely to fall dramatically because there is such a high demand for property in the UK and yet a restricted supply.
Key factors here have included the failure of successive governments to push through any real property building policies, as well as a large influx of immigrants from elsewhere in Europe and beyond.
Those who suggest that a crash is still likely suggest that the housing market has only been propped up because the cost of borrowing has been kept artificially low. Some suggest that banks and other mortgage lenders have been rather too keen to lend money.
There are fears that the UK may go the same route as the United States, where sub-prime mortgage lending has left real problems for the property market.
Whatever the future holds for property in the UK, it’s likely that estate agents in the more affluent towns and cities of the south-east may witness the largest price changes.
Expensive areas such as London, Winchester and Guildford may hold up better than elsewhere, but we’ll all have to wait and see.