ONS house price data: government schemes drive wayward price rises
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on the publication of ONS house price data for November, which shows government schemes drive wayward price rises.
Key points from publication:
- Land Registry September data showed new build prices were up over a fifth in a year (21.7%), compared with around a tenth (11.6%) for existing properties.
- ONS November figures showed average house prices were up 10% in a year, up very slightly from 9.8% a month earlier.
- The average house price rose from £268,000 to £271,000, although it remains below the record high of £272,273.
- Average prices are up £25,000 in a year.
Sarah Coles said:
“Government stimulus has driven wayward property prices – especially for the new build market. In September, prices of new properties had risen by more than a fifth in the year – almost twice as fast as those for existing properties – driven to a large extent by Help to Buy Loans. Meanwhile, the withdrawal of the stimulus of the stamp duty holiday sent prices down in October, before bouncing back in November.
“The House of Lords recently criticised the Help to Buy equity loan scheme, saying that by helping people borrow more, it meant developers could hike their prices, artificially inflating the market. It calculated that in more expensive areas, it inflated the cost of homes more than it saved buyers through the subsidy, so was a waste of money
“Price inflation deals a double whammy for anyone who takes advantage of the scheme, because when they eventually come to repay the government for the loan, the amount they repay depends on property prices at the time. If you borrow 20% to buy a house costing £200,000 and the price then rises to £300,000, you’ll have borrowed £40,000 and be repaying £60,000.
“Meanwhile, the end of the stamp duty holiday in September pushed prices lower in October, but saw them recover slightly in November, so annual price rises rose again. We can expect this to back off in the next few sets of figures, especially with the threat of rising rates hanging over the market.
“Higher than expected inflation in December pushed CPI to its highest in 30 years. The Bank of England hasn’t been this far from its 2% target since it introduced it, so it may be persuaded that more rate rises are needed sooner rather than later. Speculation is growing that the next rate rise could hit as early as February, but even if the Bank holds off, we can expect more increases as we go through the year.
“We know from December’s rate rise that the banks won’t hold back in hiking mortgage rates. Most people with mortgages have a fixed rate nowadays, so they will be protected from rate rises until their deal comes to an end. But those looking for a new mortgage will see the impact far more swiftly.
“Rates are rising from real lows, and assuming you have a big enough deposit, you can still get fixed rates below 1.5%, so we’re a long way from the double-digit mortgage rates we’ve seen in the past. However, there will be some buyers who think twice about stretching their finances at the moment.
“Right now, we’re not expecting prices to fall, especially while buyers continue to outnumber sellers so dramatically. The shortage of homes on the market should keep a floor under prices – so we’d expect a slowing of price rises rather than anything more dramatic.”
Kindly shared by Hargreaves Lansdown
Main photo courtesy of Pixabay
