Mark Carney, the Governor of the Bank of England, has today finally admitted that the UK housing market is in deep deep trouble. In a television interview this morning he was interrogated about the state of the UK housing market and the fact that property prices continue to go from strength to strength, with particular emphasis on the London real estate sector. Despite months of gentle warnings, the Bank of England now admits that the UK housing market is in deep deep trouble.
There is growing optimism that we will see the introduction of new policies, new restrictions and indeed more newbuilds in the short, medium and longer term as a means of offsetting the ongoing issues.
It is becoming more commonplace for mortgages to be arranged on in excess of four times joint income which is pushing the boundaries of common sense. This is something which has been concerning experts for some time now although the Bank of England has finally admitted this is a problem which is growing.
Quote from PropertyForum.com : “There is a very useful service on the UK Land Registry website which allows you to check how much properties have been changing hands for in your area. This not only gives you up to date information but it also gives you an idea of how prices have changed over the years.”
The problem with a debt lag is the fact that individuals and couples are saddled with potentially enormous debts for many years to come and as and when interest rates rise, there financial position could change significantly. Not only would this have an impact upon demand for UK housing stock but it would also lead to less expenditure within the UK economy with the knock-on effects from weakened consumer spending.
More newbuilds required
One interesting fact which emerged from Mark Carney’s interview this morning was that Canada builds around double the amount of new properties per annum compared to the UK, even though the UK market is twice the size of Canada. This perfectly illustrates the fact that UK governments over the years have manipulated the system to ensure that there is always demand for property which continues to push prices higher and higher in the long term.
It is also interesting to note that alongside the lack of long term newbuilds in the UK, a number of UK housebuilders are announcing record new build numbers and demand. This would indicate that there is and has been demand for newbuilds in the UK although perhaps planning applications and redtape are holding up the situation at the moment?
What does this mean for the UK property market?
The Bank of England is looking into restricting mortgage finance, thereby reducing the number of those overstretching themselves, while increasing housebuilding finance. This would seem to be the perfect scenario in the longer term although the short-term situation is a grave worry. If the UK housing market was to burst then this would leave many people with enormous debts, potentially negative equity and could set back the sector and economy many years.
Even though Mark Carney has been very vocal today with regards to his concerns these are not new concerns and so far very little has been done by the authorities. Whether it is the fact the Bank of England is independent from the government of the day or perhaps there is little appetite in the UK government at the moment, more needs to be done to avert a potentially disastrous bubble burst in the UK real estate market.