Ernst & Young: fears of a housing bubble are ‘unfounded’
Fears of a housing bubble are “unfounded and premature at best”, the Ernst & Young Item Club has said, despite predictions that say house prices will continue to rise.
A new report from the organisation predicts that the government’s Help to Buy scheme will lead to a rapid improvement in prospects for the housing market. A boost in demand is expected to lead to house prices rising by 3.5% this year and 6.6% in 2014.
Peter Spencer, chief economic advisor to the EY Item Club, said, “The chances of seeing another housing market bubble are extremely slim. House prices and transactions are only just recovering from the credit crunch and will be paltry in comparison to those of a decade ago.
“Lenders will still check that the borrower’s income is sufficient to support the loan and this check is the main protection against rising interest rates and other problems in the future.”
Over a million people are set to move home this year alone and investment in new housing projects is set to increase by 7.5% next year and an additional 10% in 2015, the report predicts.
Fran Boait, campaign manager at Positive Money, takes a different view on the housing market.
Writing in The Guide to Sustainable Homes 2013, she said, “Even those with housing don’t benefit massively from higher house prices; after all, we all need somewhere to live, and anyone selling their home will find that on average other house prices will have risen by the same amount, leaving them no better off.
“In reality, only the banks and those with many properties benefit from high house prices.”
She added that the Help to Buy scheme has the potential to create another housing bubble by making people think they can buy another property and taking out mortgages that they can’t afford. As a result, the so-called ‘wealth-effect’ is clearly “not sustainable in the long run”.
Register with Blue and Green
To leave a comment on this article, fill in your details below to register, alternatively if you are already registered you can login here