Is the UK in a property bubble?

Is the UK property market in a bubble and set to crash? Or is now a good time to buy? We take a look at the current situation.

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A recent report by Halifax indicates that the average price of a home now stands at an eye-watering £261,743. That’s a £22,000 (or 9.5%) increase over the past 12 months. So is the UK is in a property bubble? Will vast swathes of the population head into negative equity? Or is house price inflation set to continue? 


Why is the UK in a property bubble?

There a number of factors influencing the property market according to Ross Counsell, Chartered Surveyor and Director at GoodMove. He explains, “We are currently in a property bubble in the UK – where we see an increase in house prices fuelled by demand.

“The ongoing stamp duty holiday, mortgage holidays, and significantly lower mortgage rates are all important catalysts creating a property bubble.”

There are likely other factors at play too. For example, people spending more time at home has created additional demand for space.

Growing expectations of increased levels of homeworking may also be driving higher prices. Because of this, many are exploring opportunities to move away from big cities.

Plus, numerous lockdowns have enabled buyers to increase their savings pot, leading to higher deposits.

Buying your first home? See our tips and tricks for newbies.

Are government schemes inflating the property bubble in the UK?

Aside from the Stamp Duty holiday, which will wind down later this month, the government has been criticised for its efforts to support the housing market. Many believe its existing housing policies negatively impact affordability. 

The government’s Help to Buy scheme, for example, offers first-time buyers equity loans of up to 40% on new build properties. However, it’s been dubbed the ‘Help to Sell’ scheme by some critics who suggest it solely benefits developers by increasing demand for new builds. 

Critics may also feel that the Bank of England’s recent quantitative easing programme feeds house price inflation. This is because many believe its newly created cash ends up in fixed assets including property, inflating the property bubble in the UK.


Will the housing market crash?

Housing market crashes are notoriously difficult to predict. GoodMove’s Ross Counsell suggests that it’s a real possibility should the right factors come into play. That said, he concedes that it’s unlikely to happen.

“If demand for property decreases at the same time as supply increases, then the bubble bursts – resulting in a housing market crash. Although this could be a worrying thought, it is highly unlikely that this will happen in the UK.

“Demand for property in the UK continues to be incredibly high, with people still continuing to move away from flats in cities to more spacious properties.  And with many first-time buyers saving money for a deposit during lockdown, this has only fuelled demand for property.

“With this in mind, it is unlikely that demand will decrease to the levels necessary for a property crash to happen. As long as demand sustains at normal levels, the property market should remain intact.”

Is now a good time to buy a house?

Ross Counsell that if you’re looking to buy a house, it may be worth waiting until later in the year: “All things considered, I would suggest that now is not the best time to be buying a property in the UK.

“It is currently a sellers’, not a buyers’ market, with house prices at an all-time high and huge competition making it hard for many buyers to find the right house or get the best deal for them. It’s likely anyone looking to buy a home right now will be overpaying for the property, even with discounts such as the Stamp Duty holiday in place.

“If we have learnt anything from this past year it is that the Stamp Duty Holiday has bolstered house prices and made it difficult for buyers. So for anyone looking to buy, I would advise them to hold off until October – once the Stamp Duty Holiday has finally come to an end.”

If you are considering taking the plunge, take a moment to read our complete guide to mortgages. Also, check out five of the UK’s best locations for first-time buyers.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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