House Price Bubble Risk

House Price Bubble Risk.

With buyers feeling their most confident in the housing market for 3 years there is a risk of a house price bubble if the government does not take action.

House prices are increasing in the current markets with the new Help to Buy scheme proving increasingly popular with new home buyers. The government is needed to come up with some sort of exit strategy for the Help to Buy scheme otherwise there is a real chance of a price bubble.

The end date for the scheme is 2017 but the government has not made it clear how they will end the scheme. The scheme is not wanted to be a permanent feature between many saying that the public taxpayer’s money should not be a continuing feature for the housing market.

Our View

Housing activity is up.  Home seeker numbers are up, mortgage applications and completions are up.  The stimulus by the government with the "Help to Buy" scheme is having the desired effect.  Whether we like it or not, Britain's internal wealth and sense of wellbeing has been fuelled by higher property prices.

The impact of this will drive prices up.  It also, indirectly, releases much stress on banks with toxic debt.

Do the maths:  If the Government continues with its plan to break up banks like RBS with the "good parts" being sold off and the "bad parts" being kept in State ownership, then it stands to reason that the Government will stimulate growth for the toxic part that it still owns.

Do expect a surge in property prices over the next five to ten 10 years.  Do expect property inflation.  Why do you think the Government has changed the inflation measure that it uses for many pensions in payment increases from RPI to CPI?  Why?  Because RPI includes property price increases but CPI does not.