The Bank of England has left interest rates at the record low of 0.50% to help stimulate the economy, following the financial crisis. There has been significant coverage in the media over the concerns of a new bubble emerging in property prices, specifically in London. The UK economy is beginning to fire on all cylinders (though unevenly) the focus is on the timing of the Bank of England’s raising of interest rates.
The latest release from the Royal Institute of Chartered Surveyors (RICS) released this morning, stated that “House sales hit six-year high as activity spreads across the country.” The key point highlighted is that, the low borrowing costs coupled with minimal new housing supply is pushing prices higher, which will continue as long as the demand outstrips supply.
The recent unreset in Ukraine, and the hot money flows from Asia and the Middle East into London property, are seen as a safehaven in essense "exporting" London property.
The Council of Mortgage Lenders also released data this morning, with figures showing strong year-on-year growth in February. There was a 41% increase of first-time buyers compared to February 2013, but a modest rising in comparison to January 2014. Full details can be found here.
When the BoE finally starts tightening there will be strain on disposable incomes for many, especially first time-buyers who have large LTV mortgages. This will hamper spending in the economy and could stifle the economic growth. A larger concern is that there will be an increase in deliquiancys due to the higher mortgage rate, and that the housing “bubble” could burst with disastrous consequences.