Rise in UK House Prices in Feb 2007

U.K. property prices accelerated for a second month in February as a shortage of homes for sale mitigated the impact of higher interest rates, a survey showed.

Asking prices rose 0.9 percent after an 0.5 percent increase in January, according to Rightmove, Britain's biggest Web site for property advertisements. A 9.7 percent rise in values in the City of Westminster fueled a 1.1 percent increase for London.

``Everything is turning around in days or weeks,'' said James Gubbins, agent at Dauntons realtors in the London borough of Westminster and Pimlico. ``The current level of interest rates isn't going to affect the market as it is at the moment. They'd have to move another percent.''

from: http://www.bloomberg.com/apps/news?pid=20601102&sid=aTCi8qTZoomk&refer=uk

Map of Average House Prices in the UK

Average House Prices in the UK widely tremendously. If you look at this map by Yahoo
House prices They can range from £63,000 average in the west of scotland to over £400,000 in London, the South East and Home Counties.

However the house price differential has narrowed somewhat in recent years. For example house prices in Northern Ireland have increased the most. This is due to the resurgence in the Northern Irish economy and therefore housing market.

Effect of the UK Housing Market on the rest of the UK economy

The UK housing market can have a big impact upon the UK economy. With rising house prices there is a corresponding rise in the wealth of homeowners.

1. Firstly house prices are the biggest form of wealth in the UK. If house prices rise, then it has a significant impact upon consumer wealth.

2. If house prices rise it can lead to increased consumer spending for 2 reasons. Firstly increased house prices will lead to a rise in consumer confidence. As people feel more “wealthy” they have more confidence to spend. Secondly people can remortgage their house to take out equity from their house. This gives them more money to spend.

3. Therefore rising house prices lead to an increase in consumer spending. As consumer spending is the biggest component of Aggregate Demand (66%) higher house prices lead indirectly to increased rates of economic growth.

4. However it is worth bearing in mind that rising house prices, do not necessarily lead to higher growth rates, it depends upon what else is effecting economic growth, such as taxes and government spending.

5. Rising house prices can lead to inflation. If the increase in house prices causes a rise in consumer spending then it could cause inflation, especially if the economy is close to full capacity. For example in the late 1980s the UK economy witnessed very fast rises in house prices and this was a major contribution to the rampant inflation of the late 80s boom.

6. Higher house prices can lead to increased interest rates. Interest rates are set by the bank of England. There primary target of monetary policy is to keep inflation at 2% CPI +/-1 A rise in house prices doesn’t automatically cause interest rates to rise, but if the bank feel that increased house prices will feed through into higher inflation then they will raise interest rates to pre-emptively stop inflation.

7. Regional variations in house prices can affect local economies. For example very high house prices in London can cause a shortage of skilled labour like teachers and policemen. This is because it is too expensive to be able to buy houses in the UK.

More on UK Housing Market

Are UK House Prices set to fall?

There are several factors that point to UK house prices falling in 2007 or 2008

1. House prices have been increasing at a rate far higher than both inflation and earnings. This means that the affordability of buying a house has decreased. This is especially the case for people in their 20s who have not bought a house before.

2. High levels of debt in the UK. UK consumers are currently experiencing high levels of debt, this is both from credit cards and mortgage payments. Therefore a rise in interest rates has a big impact upon people’s disposable income. Even the small increases in interest rates are therefore likely to cause a big fall in demand for housing.

3. Buy to Let Speculators could start selling. To understand why UK house prices may fall it is important to understand why UK house prices have risen so much. Part of the reason is that Investors have been buying houses to let. This means they get income from renting to pay the mortgage but the main motivation is that they hope to make capital gains. With rising house prices, other investors jump on the bandwagon and start buying. This magnifies the increase in house prices. However when house prices start to slow down these buy to let investors will sell, causing overall demand to fall.

4. The renting market has started to slow down. Rents are not rising by the same rate as house prices. This makes it more likely that buy to let investors will not remain attracted to the UK housing market.

5. Core inflation is higher than the government’s target. Measuring inflation using the old RPI measure, inflation is currently running at about 4%. This means it is likely interest rates may have to continue rising in this year. Higher interest rates of course push up the cost of mortgages and therefore cause demand for houses to fall. UK house prices are therefore susceptible to any future rises in interest rates.

Myths of UK Housing Market

A look at some of the myths of the UK Housing Market including whether prices will always keep on rising in hotspots like London? Will house prices ever fall?

First TIme Buyers look abroad

With UK house prices out of the reach of many first time buyers in the UK. There is an increasing trend for first time buyers looking at the possiblity of buying abroad. House prices on the continent are significantly cheaper and offer a way to get on the property ladder. In some countries house prices have been rising sharply in recent years.

However it is worth remembering that housing market in other countries is not driven by the same home ownership culture. In France and Germany renting a house is more popular. Also there is not the same shortage of supply, therefore it is less likely that house prices will perform the same as in the UK.

See first time buyers at the Times

UK House Prices in 2007 to Rise by £12,000

The Centre for Economics and Business Research (CEBR) predicted that the value of the average house would jump by nearly 8 per cent from £179,500 to £193,000 in 2007.

This is despite recent rises in interest rates and fears that first time buyers are being priced out of the market. Continued house price rises are due to:


The strong growth in earnings in the city.

Shortage of Supply of housing

Real interest rates are still relatively low

Strong Economy

Banks willing to give bigger loans to first time buyers, through increased use of interest only mortgages

However not all economists agree with this.

UK House Prices

Hi and welcome to this blog about UK house prices. This blog intends to look at trends and prospects for the UK Housing market. At the moment there are many different opinions about the prospect of house prices in the UK for the next couple of years. It always worth remembering the experts get it wrong.