House prices have risen again but this time it appears they might have risen past a dangerous threshold.
According to the Nationwide, UK prices increased by one per cent in June, taking the annual rate of increase to 11.8 per cent. It means the average price in the UK is £188,903 and in London £400,000. But, more worryingly, it means house prices have risen above their peak in 2007, just before the housing bubble burst.
The question now is whether a bubble is forming again and whether enough is being done to control it; so far, the evidence is variable. In London, for example, prices do look like they are out of control, although some estate agents in the city say buyers are at last beginning to show more caution.
According to the Nationwide's figures, there also appear to have been big rises in some parts of Scotland, most recently South Ayrshire and the Borders, although, again, the picture varies. There are some parts of the UK where prices are continuing to fall.
But even when these local variations are taken into account, the weight of evidence is that UK house prices are once again too high and rising too fast. What's more, there is already concern that the action taken by the Bank of England might not be enough to ensure a manageable balance in the market.
Robert Gardner, Nationwide's chief economist, is one of those who has his doubts. The Bank of England's measures, he said, are unlikely to have a significant impact on housing transactions or price growth and it is easy to see his point on the Bank's ruling that loans of 4.5 times a borrower's income or higher should account for no more than 15 per cent of new mortgages.
The problem with this measure (welcome though it is) is that loans of that scale account for only 10 per cent of the market which still leaves room for a great deal of expansion. In the longer term, it may be that the Bank will have to go further and restrict the lending further to 3.5 times income, which has always been recognised as the sensible upper limit anyway.
The other measure the Bank has taken, the stress test that ensures borrowers can keep up their mortgage payments in the event of an interest rate of up to 3 per cent, has more promise. The fact that Mark Carney, the Bank's governor, has repeatedly hinted at an imminent rate rise may itself help to dampen the market.
As for the UK Government, it must do more, particularly to encourage the building of more houses. There have been some encouraging signs of late (many construction firms have been taking on more staff, for example) but, earlier this week, it was revealed that UK Government officials expect a decrease in new builds this year.
If the dreaded housing bubble is forming again, that kind of news on home building will not help. The housing sector is unquestionably an important part of the economy, but the danger of the kind of price rises we are starting to see in some parts of the UK is that prices will once again become detached from realistic, average incomes. And that, as we learned in 2008, is not only unsustainable. It also risks undermining the entire economy.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article