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In eight graphs: why we should worry about housing bubble 2.0
by David Campbell on Jul 26, 2013 at 09:04
Jupiter chief executive Edward Bonham Carter has compared efforts to boost the housing market as 'giving a reformed alcoholic another drink'. These graphs underline why we should be worried about a new housing bubble.
Government plans to underwrite mortgages for first time buyers (without any new attempt to stimulate housing supply) has kickstarted a second leg of the housing bubble, with all regions of the UK recording annual price gains in May for the first time since 2008 as scarce property is bid up.
Funding for lending and balance sheet repair has simultaneously boosted mortgage credit, with approvals in May running at their highest rate since 2009. While that remains well off the pre-crash high and the long-term average much diminished supply means this has a disproportionate effect.
After the lean years, this has housing professionals salivating. A spike in new buyer enquiries to the highest since mid-2009 has pushed chartered surveyor expectations of 12-month price gains to their highest in the 15 years that the Royal Association of Chartered Surveyors has been polling members.
As a national phenomenon the gains are increasing the inequality of London versus the rest in both wealth and economic activity however. While housing gains have been widely spread they have not been evenly spread. Isolating regions show London prices up 6.6% versus 1.8% in the rest of the UK
The value of property in London and the south east already surpassed the value of residential property in the rest of the UK combined in 2012, according to figures from property agency Savills. The last time this happened was in 2003 as the regions caught up with London’s then fledgling boom
At a time of normalising rates, an expansion in credit could be bad news for individual creditors and the taxpayers who will ultimately left holding underwritten mortgages. Personal insolvencies since the crash have so far remained relatively contained, thanks to the record low in interest rates
Even in April however – ahead of the big spike in rate volatility – there were signs of what may be to come. The Woolwich Affordability Index, which measures the mortgage costs of two million Barclaycard users as a percentage of their income, registered its first annual increase since 2008
Without a surge in income inflation, the 2% gain in interest rates by 2017 currently being priced by markets would push 1.25 million UK families into ‘debt distress’ or paying 50% of income on debt payments, according to the Resolution Foundation, with three times that paying a quarter of income