The property market has been unexpectantly lively with the rise in prices of 3.4% in the year so far. Top mortgage providers predicted that the rise in property prices for the whole of 2006 would be only 3%.
Over the last month the average property price has risen by 1.4%. According to http://www.wheresmyproperty.com, the highest changes over for last month were in County Tyrone (+7.1%), Avon (+5.7%) and the Borders (+5.6%).
So where could this lead? If the rises in house prices continue at the same rate throughout the year the rises will reach double digit growth. The demand for houses is strong – the number of loans approved for buying houses was over 25% higher than a year ago, the economy is expanding, there are high levels of employment and interest rates continue to be low.
However, the high level of house prices in relation to earnings could lessen the housing demand. First time buyers have difficulty to earn a large enough income to secure a mortgage and save for a deposit. Bills have risen to such an extent that council tax and utility bills will represent around 35% of the total housing costs in 2006/7, overtaking mortgage interest payment as the largest cost for homeowners.
Yet these factors are unlikely to have a large enough effect to dent the housing market. If the house prices were to rise enough to cause concern the Bank of England would be likely to put up interest rates which would produce a slow down.
London is the traditional driver of property price inflation and according to http://www.wheresmyproperty.com the prices in London are rising. The top areas were Camden and the City of London which both rose over 10% in the last 2 months.
Despite the pessimism property prices have already beaten the year’s predictions and the prices look set to continue to rise.