UK Housing Market: Affordability Concerns Despite Strong Momentum

The UK housing market has witnessed significant momentum in recent years, with house prices rising by 8.4% in December 2013 compared to the same period in the previous year. However, concerns are being raised about the affordability of housing, with experts questioning whether the current pace of growth is sustainable. Robert Gardner, chief economist at Nationwide Building Society, believes that while the housing market has shown remarkable resilience, affordability does pose a risk, particularly if interest rates rise.

Key Takeaways:

• House prices in the UK rose by 8.4% in December 2013 compared to the same period in the previous year.
• Robert Gardner, chief economist at Nationwide Building Society, suggests that the housing market has shown improved momentum, with the average monthly price gain increasing from 0.4% in the first half of 2013 to 1% in the second half.
• Despite wage growth being around 1% per year, the gap between house price growth and wage growth is a concern, indicating a potential stretching of affordability.
• The house price to earnings ratio has been above the long-term average since 2001, which Gardner argues makes it difficult to compare to previous periods.
• The Economist notes that mortgage rates are close to all-time lows, which helps to support affordability, with typical monthly payments accounting for around 29% of take-home pay.
• The Help to Buy scheme, introduced in April 2013, is seen as extending the trend of improving credit conditions for borrowers, but Gardner believes it is not the primary driver of increased demand.
• The Bank of England has more tools at its disposal to analyze and potentially intervene in the housing market, and will be closely monitoring signs of a housing bubble.
• Gardner suggests that a bubble would be defined by a combination of factors, including stretched affordability, a widening gap between house price growth and earners' income growth, and a subsequent increase in housing prices.

Statistics:

• House prices rose by 8.4% in December 2013 compared to the same period in the previous year.
• Average monthly price gain increased from 0.4% in the first half of 2013 to 1% in the second half.
• Wage growth is around 1% per year.
• House price to earnings ratio has been above the long-term average since 2001.
• Mortgage rates are close to all-time lows.
• Typical monthly payments account for around 29% of take-home pay.
• Help to Buy scheme has been in operation since April 2013.
• Bank of England has more tools to analyze and intervene in the housing market.

Sources:

• Bloomberg News
• Nationwide Building Society
• Robert Gardner, Chief Economist, Nationwide Building Society
• Bank of England