All the current indicators show that the housing market is striding ahead like Ian Botham on a charity walk. Prices are on the rise across the country and thanks to support from the Government, using our money by the way, and the Bank of England keeping down interest rates, all in the property garden is roses - or is it?
When you look past the headlines you see a different picture that makes me feel that the current upturn in the market is not sustainable.
Let me explain.
Lack of properties coming to the market will slow the market down
Talk to any estate agent and they will tell you that they need more properties to meet the current demand, particularly in the first-time buyer market. So, if houses are selling so well, why aren't people, after years of inactivity, taking advantage of this sellers' market.
The answer is twofold
Negative equity
Many people who bought their properties just before the housing market crash are still sitting in negative equity, or very close to it. According to a recent survey by the BBC, 16% of homeowners in the North East & Cumbria are in negative equity, with West Midlands (11%), Yorks & Humber (11%) and Scotland (13%) all in double figures. Spare a thought, also, for the poor homeowners in Northern Ireland where negative equity is a problem for 41% of households.
So whilst the negative equity situation is improving and, taking the UK as a whole, is at a reasonably comfortable level of 8% there are large regional variances. Overall there are nearly half a million households in negative equity, so these homeowners will not be moving any time soon.
Mortgage issues for current homeowners
Many existing homeowners who bought their property just prior to the property crash were spoilt for choice when it came to arranging a mortgage. As we all know, lenders were dishing out mortgages to anyone who put their hand up, or so it seemed. Post crunch the lenders kept their hands firmly in their pockets, causing the housing market to stagnate.
Although lenders are now slightly more accommodating, new lending rules coming into force in April will make it tougher to get a mortgage, especially if you do not have a perfect credit record or need stretched income multiples. So these homeowners wont be moving anytime soon.
First-time buyers are fuelling unsustainable price increases
Over the past few years first-time buyers have been unable to get on the housing ladder due to the lack of mortgage funding. These potential buyers were happy to keep saving for a mortgage happy in the knowledge that house prices where not rising. Also, as the market was dormant, they thought that when they had saved enough for a deposit they could negotiate a good deal with a buyer desperate to sell.
Now everything has changed. With prices on the way up buyers are now panicking to jump on the property bandwagon before the property prices disappear out of sight. If you again talk to estate agents you will also get stories of how 'the bank of Mum & Dad' are helping their children in ever growing numbers to beat the price increases.
Eventually the current flood of first-time buyers will calm down as they find homes, probably overpriced, or they can't afford the new inflated prices.
Interest rates will go up and Government support will end
I realise that there have been recent statements issued to calm the fear of an early interest rate rise or the withdrawal of Government backed schemes but these two things will happen eventually. The higher property prices go the sooner this will happen.
When these artificial props to the housing market are removed we will then be back in the real world. This article - Interest rate rise will hit British households hard - explains how up to 2 million household could find themselves struggling to pay their mortgage if rates were to rise to a level of around 3%.
Removal of these props will have a negative impact on the housing market with even more householders unable to move.
Summary
I am as pleased as anyone that the housing market is on the move again. The impact a buoyant housing market has across the economy as a whole is sizeable.
However, what we need is a housing market with a sustainable level of activity but I am afraid that is not what we are experiencing now.
