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Unintended consequences? Matthew Warburton - 07/07/2014

UK_review_300The UK Housing Review mid-year Briefing, published during CIH Conference week, casts new light on recent developments in the UK housing market. Two points in particular struck me.


The first is that all the talk about a London housing bubble is highly dependent on the chosen measure of house prices. While some indices show a rapid increase in prices, it is questionable whether like is being compared with like, and in particular, the lack of reliable mix-adjusted data means that the apparent rise in London prices may be partly a result of the fact that more larger properties are changing hands than was the case five years ago.


Recent action by the Bank of England to tighten the availability of mortgages ahead of a likely rise in interest rates serves to highlight the second point I took from the Briefing.


While mortgage rules for prospective homeowners are being tightened, and it is all-but impossible for them now to obtain interest-only mortgages, these remain the norm for buy-to-let investors, with 83,000 buy-to-let mortgages being issued for new purchases in 2013. This enables landlords to cover them from rent levels which, while rising, are less than the mortgage costs of a first-time buyer on a similar property.


This situation raises the possibility that, as mortgages become harder for homebuyers to get, the effect will not be so much a dampening down of demand as the replacement of home-owners by buy-to-let purchasers. Instead of downward pressure on prices we may find an acceleration in the growth of the private rented sector.


And while private renting has an important part to play in meeting the housing needs of many households, it has not been the policy of any government in the last century to promote private renting at the expense of home-ownership. Yet this may be the unintended consequence of the different tax and mortgage rules applied to home-buyers and investing landlords.

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