Houses prices are continuing to rise, but new regulations could calm this
The Nationwide have just released figures that the average house price is now £180,000 which is a huge increase of 11% during the past year. Having struggled through the recession house prices are continuing to rise.[divider]
Why is it that house prices struggled for so long and now they are increasing at such a pace?
The lengthy recession that we have just experienced was mainly caused by major problems within the banking sector. The banks found themselves with much less money to lend and increased lending restrictions. This made it increasingly difficult to raise finance, particularly when looking to borrow at high loan to values. People who struggled to prove income or had a poor credit history suddenly found that they could no longer arrange finance. Most significantly 100 per cent mortgages disappeared and first time buyers found that they were unable to obtain a mortgage due to the increased deposits required.
This caused a massive drop in demand for houses, property developers struggled to sell their houses and the market collapsed.
Having experienced falling property prices for many years throughout most of the UK, we have recently been experiencing rising property prices. This is due to a number of reasons:
- Greater consuming confidence as people realise that the economy is on the mend, this encourages spending on luxury items and property.
- There are more mortgage products available at very competitive rates. Lenders have increased confidence which leads to more competitive mortgage products. This sees lenders competing with each other by introducing more competitive rates, and also by introducing more flexible lending criteria as they look to attract more customers.
- Seasonal factors as the spring traditionally shows sales improvements.
- A continued shortage of houses available for sale, especially for first time buyers. Demand for additional homes is currently 200,000 per year, but only 120,000 new homes will be built.
- The help to buy scheme has made it possible for many people to buy a home who otherwise would have been unable to. This scheme has already helped thousands to raise the deposit that they so desperately needed in order to get on the property ladder. Furthermore this scheme has been extended for another 6 years.
- Continued low inflation which in turn is helping to keep interest rates low.
- More people in employment with better job and wage prospects.
A new factor that could reduce house prices
However, new mortgage regulations have just been introduced. Although only officially coming into effect this week, most lenders introduced them before the deadline, many of them within the last month. The new regulations will make it harder to obtain mortgages, in particular during the short term as brokers and lenders get to grips with the new procedures. This has no doubt already had a calming influence on house prices.
Moving forward the new regulations are not likely to prevent people from obtaining mortgages, but are likely to reduce the maximum amount that can be raised. Customers who are looking to raise the maximum amount possible will find that the amount they can raise will now be less. Consequently they will have less funds available to spend on a home. This will certainly be a factor that will act against rising house prices.