Published On: Thu, Jan 4th, 2024

UK economy steering towards house price boom instead of price crash this year | Personal Finance | Finance

This time last year, a UK house price crash looked a cast-iron certainty, with some doom-mongers warning of a 25% drop.

It’s a tribute to the resilience of our economy and property market that it now looks like we may be heading for a boom instead.

This is brilliant news. A full-blown house price crash causes misery for millions. Tens of thousands lose their homes. Others are trapped in properties they can’t sell. Pensioners who want to raise cash from an equity release lifetime mortgage can borrow less.

A crash hurts the wider economy, too. As millions of homeowners feel poorer they spend in the shops. Plumbers, electricians, furniture makers, estate agents and others struggle when the property market tumbles.

Banking and housebuilding stocks crash, too. The stock market often follows. It looks like we may have avoided all of that, which is great news.

Many homeowners will still struggle, though, with more than a million coming to the end of their low-cost fixed rate mortgages this year.

They may pay hundreds of pounds more every month for their new home loan, but not as much as they might have done, thanks to our competitive mortgage market.

It’s incredible news that HSBC is about to launch a mortgage is charging less than 4%. Just 18 months ago, they were heading towards 8%, which would have been an absolute calamity if it had happened.

We should also praise mortgage brokers, who in recent years have been putting the vast majority of their clients onto two and five-year fixed rate mortgages, rather than variable rates. That has protected millions from the full force of rising borrowing costs.

It’s an irony that we have also been bailed out by the housing crisis. The UK simply isn’t building enough properties for our fast-growing population, underpinning prices and preventing a full-scale meltdown.

First-time buyers who hoped that prices might fall to more reasonable levels may be feeling frustrated, as that looks unlikely to happen now.

Prime Minister Rishi Sunak has talked of offering financial help to get them on the property ladder, but should tread carefully. Government-backed schemes Help to Buy have only inflated prices in the past.

What we need are more homes, not more taxpayers cash thrown at the problem, as that only makes it worse.

It’s worth remembering that property has fallen in real terms, though. While Nationwide reports that house prices dropped by a mere 1.8% in 2023, official figures show that wages rose by 7.2% in the year to October.

This means that anybody who has a job will find a property around 9% cheaper in real terms, although higher mortgage rates will erode most of the benefit.

If inflation and mortgage rates continue to fall, as I expect, house prices should stabilise and even start climbing.

Yet I hope the Bank of England doesn’t rush us back to the days of near-zero interest rates. That will only inflate prices all over again and sow the seeds of the next property panic.

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