According to the Halifax, one of the UK’s biggest mortgage lenders, house prices are rising at their fastest annual rate for nearly three years. The lender said that house prices for the three months to the end of June were 3.7% higher than the same period in 2012 – the fastest rate of increase since August 2010. Halifax say the average UK home now costs £167,984.
However the Nationwide survey last week reported a smaller 1.9% increase in prices over the same period.
Halifax’s chief economist, Martin Ellis, believes the increase in prices is being caused by a shortage of available properties for sale and improved confidence in the housing market.
A more likely cause is the low interest rate policy of the Bank of England and the supply of cheap money from the Government’s Funding for Lending initiative. History shows that in times when cheap loans are readily available house prices go up and when interest rates are high, house prices fall sometimes crash. A by-product of the current BoE policy of low interest, pro-inflation to reduce the national debt is the cost to savers, around £1bn a year in real terms, as the value of their savings is being eroded by low interest rates and inflation.
Add in the foolish government house builder subsidy that is Help To Buy, giving house builders an opportunity to sell new homes with the tax-payer providing up to 20% of the sale price. In addition, the mortgage guarantee scheme where the government underwrites a portion of the home loan giving lenders will give buyers a greater access to mortgages, even those with a small deposit.
Sound familiar? Well it should. This is exactly the scenario that caused the last financial crisis. Buyers being given cheap loans to buy homes they couldn’t really afford, as prices rose month after month. This time, it will be the British Government without a chair to sit on when the music stops.