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UK house prices rise to a record level, Nationwide’s May data show The data from Nationwide shows that the price of houses in UK rose to a record high in May rising by 11.1% to £186,512. This is fuelling a debate that UK housing market could be developing into bubble (Cadman, Parker and Aglionby par 1). The European Commission has also warned that the housing market in London is posing a threat to UK’s economic stability. Previously, the highest peak for house prices was in October 2007 when the index was £ 186,044 (Cadman, Parker and Aglionby par 2).
The EU has asked Chancellor George Osborne to act by calming down the housing market. The EU suggests that this be done by increasing council tax on more expensive properties in the Help to Buy scheme (Cadman, Parker and Aglionby par 3).
The rise in UK’s house prices is said to run counter to other indicators which have suggested that the market is cooling slightly. The Bank of England for instance noted that the number of mortgage approvals has fallen for third successive month standing at 17% lower than in January (Cadman, Parker and Aglionby par 4).
As some economists have suggested, this could be because of banks changing lending criteria ahead of the introduction of Mortgage Market Review (MMR) (Cadman, Parker and Aglionby par 5). However, the chief economist at Nationwide is of the opinion that while the activities in the housing market appear to moderating, it is too early to conclude that nationally there is a cooling trend in the wider housing market. He noted that the role of MMR may take a few months to have an effect on housing prices (Cadman, Parker and Aglionby par 8).
The EU recommends adjusting the second-stage of the Help to Buy scheme which is not restricted to new builds and mitigating risks related to high mortgage indebtedness (Cadman, Parker and Aglionby par 9). It also recommends dealing with housing shortage by boosting the supply of houses through appropriate incentives (Cadman, Parker and Aglionby par 11). Nationwide however dismisses the role of Help to Buy scheme in driving up prices and attributes it to improved labour market conditions and brighter economic outlook which have stimulated buyer demand (Cadman, Parker and Aglionby par 14).
The data shows that the Quarter 1 ratio of house prices for first time buyers reached 4.7 times that of their earnings (Cadman, Parker and Aglionby par 13). This is one of the highest since third quarter of 2008. The Bank of England warns that the housing market now poses the biggest domestic risk to financial stability. The Financial Policy Committee which will meet at the end of June is likely to take action to rein in on the rising housing prices (Cadman, Parker and Aglionby par 16).
Works Cited
Cadman, Emily, George Parker and John Aglionby. UK House Prices Rise to a Record Level, Nationwide’s May Data Show. 3 June 2014. Website. 3 June 2014.