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Frank Eve Monday, 07 June 2010

Frank Eve

Do you ever get a feeling of Deja Vue

I don’t know about you but when I see land registry figures showing that house prices are now going up by 8.5% per year and the Nationwide house price index saying they are 9% up on a year ago I get that deja vue feeling.

I feel sure we have all seen it before. House prices in some areas are back to where they were at the height of the boom or even higher in London. We seem to be back in boom and bust territory.


But just like last time I know that house prices are too high, you only have to look in any estate agents window, but I don’t know what will cause the bust this time.


Many borrowers are still finding it difficult to pay the mortgage but the demand for housing in the UK has never been higher.

However, there are some disturbing storm clouds on the horizon that could trigger another correction.


It could be interest rates rising, the OECD has recommended that UK interest rates should be at 3.5% by the end of 2011. I am not sure this will happen but if it did we could see a squeeze on affordability as mortgage rates would have to move in line.


It could be rising tax bills, inflationary pressure, Government spending cuts or more unemployment.


It could be the rise in CGT the Government is talking about which may trigger a rush to sell Buy to Lets or it may be the funding gap that I referred to in my last blog.


It could also be the problems with Greece, Spain, Italy and Portugal as there is still a chance the money markets could freeze again as they did after the Lehman failure if Banks run scared as a result of a default in the Bond market.


The fact is that there are many factors putting pressure on house prices, this does not necessarily mean house prices will fall soon, markets can boom for a long time before they bust, but whatever the trigger may be there are now plenty of bullets in the gun.


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