It seems everyone’s eyes are on the housing market at the moment. Is the boom suddenly going to go bang? John Elliott, Managing Director of Millwood Designer Homes, gives us his thoughts.
“I think what people need to realise is that the boom exists in London, not outside. London is one market, and everywhere else is another market. A typical home in London costs twice the UK average. This is partly due to the large number of overseas buyers who have not been affected by things like the recent changes to mortgages. Most overseas buyers are looking at an investment opportunity, and London has certainly proved to be a wise choice over the years.
“Higher house prices have helped push stamp duty revenues close to an all-time high, with London contributing around 42% of the total stamp duty paid on residential properties in 2013 and 2014. The typical home now spends just 88 days on the market – 16 days faster than this time last year, whilst properties in London sell in an average of 43 days. When you look at the figures, London is in a completely different world, and I think it is important to realise it is not the same for the rest of the country.
“There is no doubt that a lack of new homes has helped to put upward pressure on house prices over the last few years. However, things are gradually improving on that front. New housing output increased 17.9% in June compared to a year earlier, according to recent figures from the Office for National Statistics, bringing the level of housing to its highest point since 2007, and rising 1.9% in June compared with May. Output across the construction industry increased 4.8% year-on-year, rising 1.2% in June compared with May.
“So what about interest rates? That seems to be on everyone’s mind. Interest rates will rise, of that we can be certain. My personal view is that we won’t see a rise before May next year, but when they do rise, it won’t be rapidly on a steep curve, it will most likely be on 0.25% increments and will make only a small difference to monthly repayments on an average mortgage. The Bank of England recently reported that they expect rates to rise at a slow pace, reaching about 2.25% in three years’ time and 2.5% in five years’ time. So these are not terrifying percentages and are only likely to occur as the economy improves even further which should mean that the effect of rate rises will not cause too much distress.
“I think the moral of the story is to not get in a panic. Do your maths based on your repayments increasing by 0.5% and you’ll realise that it isn’t so bad. The reality is that it’s a great time to buy and mortgages will become more and more available.”