By the end of 2013 there was a wide spread feeling of renewed confidence in the UK housing market. Transaction levels were up, prices (with huge regional variances) were up and the banks showed a renewed appetite to lend.  According to the Halifax the average price for a house in the UK now stands at £174,940, up 7.7% year on year – the highest reported growth since 2007.  It must be noted that these figures are clearly distorted by the numbers experienced in the London Boroughs where double digit increases were experienced and the average property price in the capital now stands at £434,000.

One of the main contributors to the feeling of well-being was the Government’s decision to encourage the banks to boost mortgage volumes and help buyers afford property through the help to buy scheme. Property they would previously have not been able to afford.  The funding for lending scheme provided banks with cheap state backed funding which had a dramatic effect, the average 2 year fixed rate mortgage fell from 3.75% in June to 2.5% in September.

Where now?  I have read the annual reports and predictions from the national estate agents, Halifax, RICS and The Office for Budget Responsibility (OBR – the treasury forecaster).   The overriding view is that we will continue in a similar vein to the final 2 quarters of 2013, increased buyer demand outpacing a relatively sluggish supply and prices rising between 4-7% in the calendar year.

So 2014 looks set to be a buoyant year but at what expense? I believe these price rises must be creating another unwanted housing bubble. With the Bank of England taking the inevitable decision to increase interest rates in the next couple of years I am concerned the new buyers of 2013/2014 will not be able to afford the repayments.  With such little equity in property affordability will likely become a real concern for householders. Government policy ensuring short term gain for long term pain? I hope I’m wrong.