Sunshine or storms for the housing market?

Posted by Ronan Marrion

Ronan Marrion examines whether the bouyant housing market is overheating and heading for a crash

unstable housing marketWith everyone back from the Summer Holidays we can reflect on the recent press speculation about the increasingly optimistic data regarding the housing market. Last week BBC Breakfast even did a two-part special focused on the increase in both house building and mortgage availability.

The RICS Residential Housing Market Survey reported recently that house prices and buyer numbers were rising and that ‘everywhere' had experienced some improvement. (2) Whilst house price rises are clearly good for existing home owners we have to bare in mind they also make it difficult for aspiring home owners.

Historically though, rising prices have been a sign of confidence in the market, and any rise in consumer confidence in the current economic climate is to be welcomed.

So why has the housing market defied the economic gloom and bounced back to pre 2008 crash levels?

There are a number of reasons for this, the most important of which is supply and demand.

Whilst the banks helped fuel the price rises earlier in the decade the main driving force of price rises was an increase in population, and an even bigger increase in the number of households and rising incomes coupled with a house building programme that couldn't keep up with the growth.

Nothing since 2008 has changed, in fact the number of house starts fell significantly after the crash of 2008 which has only exacerbated the shortage of supply. Not enough new houses are being built to keep up with number of new households being created. (1)

In addition, there are now over 500,000 more people in work than prior to the 2008 crash. As every economist will tell you where demand outstrips supply, prices will invariably rise. (1)

Another major consideration is base rates that have fallen from 5.5% to 0.5%, which has for most borrowers made house ownership more affordable. (1)

We should also not forget that despite the fact that wages have risen more slowly than have done in the past, they are still on average 8% higher than they were just before the crash in 2008. (1)

Given these factors and the reduction in the supply of available property to buy in recent years, it is arguable but there is no reason to believe that the current prices are not only sustainable at current levels but will increase further.

A further sign of market confidence is an increasing availability of mortgage finance and building societies and other mutual lenders are playing their part here. In the first seven months of this year lenders provided mortgages to over 48,000 first-time buyers, a third up on last year. Of these borrowers a quarter had loans based on a deposit of 10% or less. (2)

Looking forward, this optimism is having an effect on the type of mortgage deal that is going to be available, so if you are looking for a good mortgage deal, experts have warned that there is just a short window of opportunity to lock into the lowest-ever fixed mortgage deals before rates rise.

Lenders are already preparing to push up the rates on new fixed deals because the cost of funding these loans has risen considerably. Two-year fixed rates are now available at less than 1.5pc. The money market rates underpinning these attractive offers have started to climb, reflecting the improving strength of the UK economy.

Already, some lenders are removing their best buy mortgages or pushing up rates, with the Yorkshire Building Society increasing the rate on its five-year fixed rate for a second consecutive week, the rate going from 2.44pc to 2.59pc.(3)

First Direct will increase the rate on its five-year deals for customers with a 10pc deposit. Its 4.19pc deal going up to 4.39pc. (3)

Ronan Marrion from Worldwide Financial Planning says;

“Lenders cannot ignore the cost of funding going up which has been driven by the markets, so if you are thinking of taking a fixed rate, there is very little to suggest rates are going to get better. Our advice is that with the help of your independent financial adviser you should explore the opportunities that are available to try and ensure that you do not miss out.”

No one in the mortgage market is looking for a feast to famine cycle and the new Bank of England governor, Mark Carney has made it clear that he has tools in his kit to prevent that happening. So, let's be sure that these signs of improving confidence don't get mis-translated and if you are looking to take out a mortgage you work with your independent financial adviser who will be able to keep you informed of changes in the market that could affect you.

If you have a query regarding Mortgages that you would like to ask Ronan Marrion about call 0800 0112825, e-mail or take a look at our website


Your home may be repossessed if you do not keep up repayments on your mortgage.


  1. Mortgage solutions

  2. Mortgage solutions

  3. Telegraph

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