Should rising housing prices inspire confidence or caution in lenders?


October 4, 2013

Tim Wheeldon is joint managing director of Fluent Money


Halifax’s latest house price survey recorded a 5.4% rise in the last year, the highest annual rate since June 2010.

With the average house price now at over £170,000 we are starting to return to pre-recession levels for the first time since the crash.

With rising house prices comes rising mortgage applications and with that comes greater stability in lending.

The British Bankers’ Association reported that the number of mortgages approved for house purchases in the last month had reached a four-year peak while the figures for remortgaging were their highest since 2011. 

This has inspired confidence in borrowers and, as long as base rates remain low, is great news for the loan market.

The key to the growth in our sector, and economic recovery as a whole, is aspirational borrowing.

As homeowners get access to higher levels of equity in their properties this increases their confidence in buying the non-essentials that have been difficult to justify until now.

This then has an impact on retailers, manufacturers, businesses and ultimately, employees.

While it seems like there is finally light at the end of the tunnel for homeowners, and lenders, we still need to be cautious. Inflating prices may have a positive impact as they are on their way up but economists across the country are wary that this might change once they hit the top.

Schemes such as Help to Buy and Funding for Lending are already sparking discussions around what happens when the bubble bursts once again and the new economic upturn could be another case of boom before bust for Britain if not managed carefully.

As long as the rises are slow and steady then there should not be a problem. However should prices rise at a similar rate the Monetary Policy Committee will be forced to step in and stop inflation rates which could halt the confidence of lenders in its tracks.

The last housing crisis left UK homeowners bruised so despite renewed faith in the housing market a dose of healthy cynicism will prove valuable to those thinking of taking advantage of the economic recovery.



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