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UK Property Value Quadruples in 20 Years

Written by Sam Jones on 20 August 2013.

With Britain as a whole worth £7.3 trillion according to official figures, we ask are we sleep walking in to another property bubble given half  the nation's wealth is tied up in its bricks and mortar. Property has quadrupled in value in the past 20 years.

Around 57% of the nation's wealth is wrapped up in homes, the Office for National Statistics found, totalling £4.4trillion at the end of last year - an increase of 4% on a year earlier.  But the figures also highlight the scale of the property boom since the 1990s.The value of property in Britain today is four times what it was in 1992 when the UK's overall property wealth was £1.2trillion.

The figures will make worrying reading for those who fear Government efforts to bolster the property market, such as the year-old Funding for Lending scheme, are creating another housing bubble.

Sleep Walking To A Bubble

Earlier this week a poll of 29 economists by the news agency Reuters found 20 raise the fear that Britain is sleepwalking into another housing market bubble. Seven economists believed there was a chance of the property market overheating, while 11 described the risk as likely and two as very likely.

Business Secretary Vince Cable also recently raised his own concerns that the Government's Help to Buy scheme launched in April, which sees the Government providing an equity loan of up to 20% of the value of a property up to £600,000, risked creating a housing bubble.

Some economists have urged the Government to consider scrapping the second stage of the Help to Buy scheme due to launch in January 2014, which could potentially see the Government acting as guarantor for £130billion worth of mortgages held by new homeowners.

The Bank of England has also indicated it will hold interest rates at 0.5% until unemployment falls below 7%. It is currently 7.8 per cent.

This is a major shift in monetary policy which has normally been focussed on keeping down inflation and is great news for mortgage borrowers.

Clients can look forward to years of lower mortgage rates on both fixed rates and tracker deals as the Carney makes his intentions clear.

To make it clear the Bank of England inflation report, published today, says there is only a one in four chance of unemployment falling below 7 per cent before 2015.

There is a 50 per cent chance unemployment will fall below 7 per cent by the third quarter of 2016, more three years into the future.

There are two checks that may force up interest rates even though unemployment remains above 7 per cent.

If financial stability is threatened by low rates or inflation is above 2.5 per cent then the Bank must consider rises.

Our clients can now enjoy the lowest interest rates in history for longer and it means tracker rates may now be a good option for many.

Mortgage impact

It is too early to say what this means for mortgage rates generally but with base rate almost certain not to rise for years then it could be significant for mortgages.

Tracker rates are directly affected by base rate but fixed rate deals are priced by financial markets but low base rate can have a knock on effect.

For instance, two-year fixed rate mortgages now become less meaningful as the risk of rate rises recedes.

It means a tracker mortgage now is very similar to a two-year fixe because it is so unlikely to change.

This could drive down the cost of fixed rate mortgages even further than the all time lows, which have just reached below 1.5 per cent for those with large deposits.

There could be more competition on fixed rates which drive down prices or there could be a shift towards competition on tracker deals.

With interest rates now set low for so long lenders could also try to attract people to longer term deals with five-year or 10 year fixed rates.

In the US 30 year fixed rates are the norm and UK lenders, such as Santander, have recently launched 10 year fixed deals.

If the rates are low enough then a long-term fixe may still be appropriate over the medium term if not the short-term.

How lenders react to this news will be crucial and we would be delighted to guide you through the maze.

Mortgages are a complex financial product and we believe financial advice can save you a packet because we are qualified professionals who examine the market every day.

We will be watching closely how this policy change will affect mortgages and are here to help.

Government schemes

The Government has also launched its own schemes boosting the market in Help to Buy for deposits and the funding for lending scheme.

We are pleased with both as the first will help borrowers buy homes with a 5 per cent deposit, which has been a real problem in recent years.

We believe funding for lending has also helped cut rates and increase lending to the benefit of mortgage holders.

The flurry of activity from policymakers can be confusing and as experts we at Capital Fortune can guide you through the maze.

We can explain how today's interest rate announcement effects your current deal and whether it is worth switching or re-mortgaging.

We can advise on rates and how best to save you money in the current, rapidly changing environment. As a firm we are delighted the housing market is recovering with increasing prices and these schemes are clearly beneficial to borrowers. Where it all ends is best left to the economists, but already only weeks in, there is ever growing concerns.

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