As the summer finally brings warmer weather, the red-hot debate over Britain’s soaring house prices shows no signs of cooling down either.
Nationwide Building Society has just reported that UK property values have reached a new all-time high in cash terms, at £186,512 on average, leaping 11.1% in the space of only 12 months.
Similarly, another house price survey, run by Halifax, found that property values jumped by 3.9% month-on-month in May — the biggest monthly jump they’ve seen since 2002.
Figures like these had already been stoking speculation that steps were needed to take some steam out of the housing market.
But now, the government has revealed plans to beef up the Bank of England’s powers to let them rein in risky mortgage lending, if it deems it necessary.
Chancellor George Osborne, who announced the measures, has emphasised that though the housing market doesn’t pose an immediate threat to financial stability now, it’s important to act to insure against any repeat of boom and bust.
Under the plans, the Bank will be handed powerful new tools to cap the size of mortgage loans as a share of the borrower’s income or the value of the house — including mortgages offered under the Government’s controversial Help to Buy scheme.
Help to Buy has had its critics from the start, and recently, even the International Monetary Fund (IMF) urged ministers to consider an early end to the scheme. But the government insists it’s “working as intended”, by helping lower income families and first-time buyers onto the housing ladder.
So who is right? What impact is Help to Buy really having on the housing market? And would curbing it really help calm down prices in the most over-heated areas?
Well, those against the scheme argue it’s pushing up prices by increasing the demand for homes at a time when supply is already fairly tight.
But others argue that calls to overhaul Help to Buy are a red herring. They say curbing the scheme would have no impact on the volume of wealthy cash buyers and overseas investors who are fuelling demand by snapping up properties in London, where the market is at its most competitive.
Restricting the scheme too tightly , they argue, could also potentially have a harmful effect on the people who need it the most, in places which are only seeing a modest recovery in the housing market.
Others point out that the direct impact of Help to Buy is actually not that what matters most either, it’s the impression it gives to consumers, fuelling expectations that house prices will continue to march upwards because low-deposit mortgages are widely available.
But is that impression about to be clouded?
The Bank of England has just hinted that interest rates could rise sooner than expected, which will impact on home owners’ costs and their borrowing ability - although any increase is likely to be gradual.
There is evidence, too, that some of the strongest heat is starting to come out of the housing market. Since April, tougher industry-wide mortgage lending rules have been in place, meaning people applying for a mortgage face more questions about their spending habits to demonstrate they can comfortably afford their home loan. Partly as a result of this, t he Royal Institution of Chartered Surveyors (Rics) reported seeing glimpses of the start of a slowdown in the pace of rising house prices.
HOW... CAN YOU MAKE SURE YOUR SAVINGS REMAIN PROTECTED WHEN HIGHER ISA LIMITS COMES IN?
From next month, savers will enjoy the benefits of being able to put much more of their cash away tax free, with the creation of a new “super Isa”.
As announced in the Budget, the overall Isa limit will increase to £15,000 from July 1, and the full amount can be held in either cash, or stocks and shares, or a combination of both.
The increase is likely to mean that some people reach their protection limits under the Financial Services Compensation Scheme (FSCS) more quickly than they might otherwise have done.
The FSCS will pay out compensation of up to £85,000 if your bank or building society goes bust.
This sum applies per authorised institution. However, some banking brands are covered by the same authorisation, meaning if you have accounts with different brands that come under the same authorisation, you will only be protected under the FSCS up to a total of £85,000.
You can check which brands come under which authorisations on the Financial Conduct Authority’s website at www.fca.org.uk/consumers/complaints-and-compensation/how-to-claim-compensation/banking-and-saving.
Financial dictionary: Logbook loan
Logbook loans enable people to use their cars as security to borrow some cash. It’s a bit like using a pawnbroker, except that you can still use your car while you’re paying back the money as long as you keep up your repayments.
Often, a logbook lender will charge an annual interest rate of 400% on a loan. Regulator the Financial Conduct Authority has recently warned logbook lenders must improve their practices or risk being put out of business, after finding evidence of poor behaviour including little or no affordability checks and lenders failing to explain the true cost of such loans.
MORE PEOPLE ARE ‘SAVING ADEQUATELY’ FOR A PENSION
The proportion of people who are saving adequately for retirement has recovered to its best levels since 2009 as the benefits of Government pension reforms and wider economic improvements start to be felt, a report has found.
Some 53% of people were found to be putting enough by for their old age, meaning they are saving at least 12% of their income or expecting their main retirement income to come from a “gold plated” defined benefits pension such as a final salary scheme, the annual Scottish Widows Retirement report found.
The total amount people have in savings and investments has reached its highest ever level in the 10 years of the study, at £40,000 per person on average.
INTEREST-ONLY MORTGAGE BORROWERS RECEIVE WAKE-UP CALL
Less than one third of interest-only mortgage holders, whose home loans are due to mature in the next six years have responded so far to a wake-up call from lenders amid fears that some will be unable to repay their debt.
The Council of Mortgage Lenders (CML) said banks and building societies have now met a commitment they gave a year ago to contact borrowers on interest-only mortgages whose deals are due to mature by the end of 2020 about how they plan to repay their loans.
It said that so far, 30% have responded about their plans, which it hailed as an “encouraging start” - but also an indication of the “challenges of achieving effective two-way communication”.
CLAMPDOWN PROPOSED TO CUT MOTOR INSURANCE COSTS
The competition watchdog is proposing a cap on replacement vehicle costs following motor accidents as part of a clampdown to help cut premiums for all drivers in the £11billion private motor insurance market.
The Competition and Markets Authority (CMA) said the cap on charges passed to the insurer of the at-fault driver (for the cost of providing a replacement vehicle to the non-fault driver) would “more closely reflect the costs incurred and remove significant inefficiencies”.
It is also proposing that competition in the market should be boosted by banning price parity agreements between comparison websites and insurers. The watchdog will consult on the plans before publishing a final decision in September.