It seems that each week brings another question regarding the valuation of UK property with many experts certain that we will see a setback in the short to medium term. The price of UK property continues to spiral higher and even though London is grabbing the lion’s share the headlines, the growing demand for UK property is now spreading to the provinces.
Despite the fact that there has been talk of a house price bubble and unsustainable house price rises, the market continues to go from strength to strength. So, is the UK property market defying gravity or is there a solid foundation for the long-term?
Bank of England passes responsibility
Despite the fact that only a few weeks ago the new Governor of the Bank of England, Mark Carney, set out his stall to manage the UK economy, keeping a close eye on UK property prices, one Bank of England policymaker has now stepped out of line.
Quote from PropertyForum.com : “In what could be a major development for the UK property market, last week’s trade mission by Boris Johnson and Chancellor George Osborne seems to have attracted the attention of Chinese investors.”
While Martin Taylor may be an external member of the Bank’s Financial Policy Committee he is most certainly at odds with the Royal Institute of Chartered Surveyors which had suggested the Bank of England should cap UK house price increases in the future. This uncertainty is something which the Bank of England, the government and indeed the UK property market as a whole would rather have avoided because uncertainty breeds confusion which can have an impact upon the underlying market and sentiment.
Who can stop the UK property juggernaut?
At this moment in time it is unclear whether the Bank of England will play an active role in short-term property price management as the comments attributed to Martin Taylor seem to be at odds with earlier indications. If this is so then we will likely see the UK property market push ahead further in the short to medium term as the UK government’s Help to Buy program feeds the need for finance and overseas interest continues to build.
When you compare the UK property market at the moment to the UK economy it is perhaps understandable that some individuals have begun to wave red warning flags. There is an argument that this possible overvaluation on paper is not as extreme when you take into account the expected increase in UK economic activity over the next 12 months and beyond. However, the number of doubting voices is certainly building although at this moment in time very few investors seem to be taking any notice.
Is momentum the key?
While there is no way that the UK property market in any way shape or form resembles the US mortgage market ahead of the 2008 crisis, there is perhaps a faint comparison when you bear in mind that momentum is/was behind the push in these two markets. This perfectly illustrates the power of momentum and the fact that as investors continue to pour money into the market, traditional valuations often go out of the window and it can sometimes be a race to get in, get out and take a profit.
There is an argument that a short-term setback for the UK property market would help to settle nerves, would help to calm the market and would in theory give some investors time to reflect. However, safely and slowly letting steam out of the market is not easy and it will certainly be a challenge for the authorities and property investors in the UK in the short to medium term.