John Elliott, Managing Director of Millwood Designer Homes, has been the voice of the property market’s recovery, fighting its corner against the cynical commentators for their negative portrayal.
For John, the property market has been showing strong signs of a sustainable recovery for some time. Now it appears that he is not the only one with this view, as he explains:
“I have found the past year very frustrating. It seems that for every positive story in the press about the property market, there are five negative ones. Most of the time it is sensationalism rather than fact.
“The latest negative story is that increased mortgage lending and spiralling house prices risk causing a housing bubble, similar to what we saw pre-recession. However, the Bank of England governor Mark Carney has been quick to hit back, believing that these concerns are unwarranted, and vowing to act at the first sign of trouble.
“Let’s not forget that times have moved on. The Bank of England doesn’t just rely on interest rates in order to contain risk. There are numerous tools they can use to secure the property and financial sectors, doing everything they can to monitor the risk of unstable credit and house-price growth, acting immediately if needed.
“In a recent interview with The Sunday Times, Paul Fisher, the Bank’s executive director for markets, was also quick to hit back at the criticism, insisting that its new policy of providing forward guidance on interest rates was working and dismissing the housing bubble fears as hype.
“The reality is that no one wants another recession, but sensationalism can often be worse than the problem itself. People are forever talking about what might happen, rather than focussing on the facts.
“The UK economy is said to be at a rate at which recovery is self-sustaining, with households’ debt-servicing costs relative to income below their 20-year average, similar to where they were in 2003.
“Economic activity is also improving. A recent report from the National Institute of Economic and Social Research revealed that output grew by 0.9% in the three months ending in August.
“Yet people are still saying that we are heading for this great, big fall. The reality is that the conditions indicate a sustainable growth over the medium-term, most importantly at a pace that is likely to be measured rather than rapid. I read an interesting article in The Sunday Times Bricks & Mortar section recently, which reported that the tempo of the market in most places is quickening, not racing away, particularly when you look at current house prices.
“So what is fuelling the fears of adverse market conditions? Increases in transactions and mortgage lending apparently, even though these rises are from a low base. The Government’s Help to Buy equity loan scheme (which has hit 10,000 reservations since it launched in April), and effectively underwrites 95% mortgages and allows people buying newly-built homes to proceed with a deposit of just 5%, is one factor being blamed.
“However, Charles Goodhart, a former member of the monetary policy committee and consultant to Morgan Stanley, is in support of the scheme, recently predicting that it could lift the construction of new homes by 30% to 40% by 2015, compared with last year.
“It is important to remember that we are still well below the figures we saw pre-recession. Residential sales in July were 18.5% higher at 88,690 than July last year. When you compare that to July 2007’s figure of 138,630, things are hardly spiralling out of control.
“The Royal Institution of Chartered Surveyors (RICS) recently said that it believes the housing market is on the road to recovery, reporting the highest number of potential buyers seen for four years, with house prices rising across the country for the fourth consecutive month.
“The positive feelings are further supported by the Council of Mortgages Lenders, who recently reported that first-time homebuyers are rushing back to the market as confidence grows and mortgages become increasingly available. 68,200 first-timers purchased property in the second quarter, the highest quarterly number since the pre-crisis peak of the property market in 2007. First-time buyers are the lifeblood of the property market, so this increased activity is very good to hear.
“So does this all sound like the bubble is going to burst? We are going to have waves of recovery, some months things might speed up while in other months they will slow down. You have to take a step back and look at the overall picture. We are still very far away from the over-inflated figures pre-recession, and I doubt anyone wants to see us get that high again. What we want is steady sustainable growth, and that is what we are getting. I don’t think the bubble is going anywhere, so perhaps it is time to stop pointing a finger at it.”