Can the UK government control the vicious circle of rising house prices?

Despite the fact that the UK economy is still struggling to move towards a consistent growth path after the various financial shocks of recent times, the UK property market continues to push higher and higher. Indeed many properties across London are now in excess of their previous 2007/08 highs despite the fact that economic growth is still patchy to say the least. We are now potentially in the realms of the vicious circle of rising house prices forcing many people towards the private rental market which again feeds greater demand for property.

In theory there are potentially a number of factors the UK government could bring into play but we are operating in a free-market economy and over bearing government regulations in the property market would not go down well with investors.

First-time buyers struggling

Despite the fact the UK government has brought in the “Help to Buy” loan program to assist first-time buyers there are grave concerns about what will happen to the market once this loan program is ended. Indeed in the meantime there is also speculation that additional funding from the UK government, the general increase in house prices and growing demand for UK property is pushing prices further and further out of the reach of traditional first-time buyers.

Quote from PropertyForum.com : “Despite the fact that all parties would in reality prefer to see a buoyant property market in the UK, which they hope will eventually drive the economy out of the doldrums, there are growing concerns that the UK property sector is becoming something of a political football.”

It’s also worth noting that despite government assistance, offering a guarantee on a portion of your property finance, you will still eventually have to pay back the government loan. There is no doubt it is assisting first-time buyers in the UK at this moment in time, and indeed the programme will be extended in January 2014, but it should not be seen as a “free lunch”.

Mortgage companies still concerned

Despite the fact that the headlines confirm UK property prices moving higher, the number of mortgages authorised the UK is growing and demand is surprisingly strong, mortgages are not readily available to each and every potential house buyer. Some people seem to missing the fact that mortgage companies are still demanding excessive deposits, guarantees and indeed many mortgage applications are rejected on the grounds of risk/reward ratios.

In many ways it is the UK government’s recent loan guarantee program which is feeding the frenzy as well as the fact that the UK economy is at the moment performing much better than its European counterparts. As a consequence we are seeing more and more overseas investors looking towards the UK property market and many of these already have finance available therefore do not require the services of mortgage finance providers.

What will happen to first-time buyers?

Unless the UK government, in tandem with house building companies, promises to undergo a massive house building programme for decades into the future it seems almost inevitable that first-time buyers will be priced out of the market to a greater and greater extent. The fact is there has been excessive demand for UK property compared to the number of new builds for many years now with accusations that the current government and previous governments have massaged these figures to ensure the long-term trend in UK house prices is always positive.

While there is no doubt that the UK government is looking to assist first-time buyers in the short term, it is the long-term situation which is more worrying for those looking to acquire property in the UK. Ongoing demand for rental property is also feeding the frenzy for UK property with buy to let landlords continuing to grow in number.