Furthermore, the Bank of England has put in place measures to ensure that borrowers do not stretch themselves too far while rates are low. This has been achieved through mortgage regulation both by limiting the amount which can be loaned at high loan-to-income ratios and by stress-testing borrowers’ ability to repay a mortgage at higher interest rates.
While that may feel like shutting the stable door after the horse has bolted, this limits the future risk of a debt-driven housing market bubble by acting as a drag on future house price growth.
It also means we are in a very different place to 2007 and is reflected in a very different market profile. Whereas in the 10 years prior to the credit crunch, housing transactions averaged 1.65m a year, in 2015 they were 1.23m. First-time buyer numbers were at two thirds of the pre-crunch average, with mortgaged home movers at 50 per cent.
Because mortgage regulation limits the amount both can borrow and benign interest rates will continue to support house prices, mortgage deposit levels will stay high. That indicates that transactions rather than prices will act as the balancing adjustment in the housing market in future.
As we have already seen in the London market, this is likely to mean that homeownership among younger households becomes increasingly confined to more affluent parts of society, who more widely spread their search area thereby changing the pattern of hotspots in the market.
The groups who have become more dominant are the cash buyers and buy-to-let investors, who together are trading in numbers 18 per cent above the 10-year pre-credit crunch norm.
In some London locations the wealthiest of equity-rich buyers have propelled house prices at a astonishing rate. This has quickly attracted the attention of house builders who have piled into fringe prime London locations, shifting the dynamic between supply and demand.
More latterly, it has also attracted the attention of the Treasury which has taken the opportunity to load stamp duty onto higher-value properties, while cutting that for the bulk of the market. Both have created headwinds for the prime housing markets and will certainly mean it is much more price sensitive than it has been hitherto. Prices have already adjusted, and further adjustments cannot be entirely ruled out, though it should be remembered that this remains a relatively thin slither of a much wider market.
Of wider relevance are the tax changes to buy-to-let investors. Some lobby groups have seized the opportunity to suggest that these will bring forward a flood of stock to the housing market, destabilising prices.
