News of the week: 31st May

Boom in housing market leads to BofE vigilance on inflation

With the booming UK property market surging towards its busiest year since the global financial crisis, a key policy maker says the Bank of England is monitoring the sector over fears it could trigger sustained inflation.

Zoopla says around 1.5 million homes are expected to change hands in 2021 -- a 45% jump from 2020. That would make it the busiest year for Britain’s housing market since 2007 and one of the top 10 years since 1959.

The total value of homes sold in 2021 is expected to rise 46% from last year, reaching £461 billion by the year’s end, according to Zoopla’s latest House Price Index.

The growing strength of the property sector has caught the attention of Bank of England Deputy Governor Dave Ramsden, whose portfolio includes markets and banking. ‘There is a risk that demand gets ahead of supply and that will lead to a more generalised pick-up in inflationary pressure. That’s something we are absolutely going to guard against’, Ramsden told the Guardian. ‘We are looking carefully at the housing market and a raft of real-term indicators’.

As measured by the UK consumer price index, inflation currently stands at 1.5%. It’s expected to rise above its 2% target briefly over the coming months.

But if inflation proves longer-lasting, Ramsden said, BofE would consider raising the bank rate up from its current historic low of 0.1% to help cool off the market.

Zoopla credits a few factors related to the pandemic for the property boom:

• The stamp duty holiday instituted last summer

• New government-backed mortgage scheme that will help first-time buyers and some homeowners secure a mortgage with just a 5% deposit.

• A pandemic-driven ‘search for space’, whereby homeowners are seeking properties with gardens and more indoor room for home working

‘House price growth is strongest in areas where affordability is greatest’, Zoopla notes. That’s especially true in Wales, where prices are up 6.3% year-on-year, as well as Yorkshire and Humberside (5.4%) and the north west of England (5.3%). On the other hand, prices are rising most slowly in London (1.9%).

Zoopla’s report comes after mortgage lender Nationwide predicted UK house prices would continue to rise beyond the stamp duty holiday, which is scheduled to be wound down this summer.

‘There will be periods when it goes down a bit’, says Joe Garner, Nationwide’s chief executive, as saying. ‘But particularly as people are buying much more for their long-term home, it doesn’t matter so much the day-to-day value of the property if it’s somewhere they really want to live’. What’s going on in the property market near you? Check out our house prices page for an in-depth & local look at the UK’s property market.

Mixed news on mortgages

The Guardian reports this is a ‘golden time’ for mortgages, with rates as low as 0.99% for some remortgagers and homebuyers on a two-year deal. The best deals are targeted at those with large deposits, it says. According to the financial data firm Moneyfacts, they’re the cheapest five-year fixed-rate mortgages offered for at least 14 years. Not everything on the mortgage front is rosey, however.

The Telegraph reports that some mortgage lenders are penalising homeowners who sought help from their banks during the height of the pandemic by seeking higher mortgage rates and rejecting new loan applications.

Some mortgage customers took a repayment holiday under rules introduced in 2020 to help people struggling with financial pressures stemming from the pandemic. As a result, nearly 3 million homeowners agreed to deferred payments after being assured doing so wouldn’t affect credit files.

But many of these borrowers have since been pushed onto more expensive mortgage rates, the Telegraph reports. Citing research from NerdWallet, the newspaper says around 10% of mortgage customers have also had an application rejected because they took a repayment holiday.

Lenders’ actions are consistent with the letter, if not the spirit, of the law, the Telegraph quoted NerdWallet’s John Ellmore as saying. ‘Indeed, applicants who have taken advantage of loan repayment holidays as a consequence of the financial pressures caused by the pandemic may well find themselves unfairly targeted, given use of such schemes was not meant to impact on their ability to access credit in the future’, he said.

Ban on renter evictions ends on England

A ban on rental property evictions enforced by bailiffs during lockdown ended on 1 June in England.

That means eviction notices can now be set at four months, whereas they had previously been extended to six months because of the pandemic. Assuming the lockdown restrictions ease as planned, the notice period will revert to where it was pre-pandemic -- usually two months.

The ban was introduced in England at the start of the first lockdown in March 2020, while governments in Northern Ireland, Scotland and Wales also took similar action.

Housing Minister Christopher Pincher said the end of the ban would ‘ensure tenants continue to be supported with longer notice periods, while also balancing the need for landlords to access justice’.