Will this house price bubble burst?

There is one thing you can say for certain about bubbles … they burst.

And that is what I do fear about the current house price rise bubble – it won’t last for ever.

There are two dangers associated with it.

Firstly, if people stretch themselves to the limit to buy a property and then the bubble does burst and prices fall, they could be left in negative equity, in other words, with a property worth less than the mortgage they have on it.

Secondly, rapidly rising house prices are all very well for those selling, but for those trying to get on the property ladder for the first time, it could be really hard.

First-time buyers are going to struggle to be able to afford any home, especially as there are only a very small number of lenders lending at 10% and most are wanting at least a 15% deposit.

All evidence is that demand for houses is growing after being subdued by the lockdown.

Rightmove said it had had its busiest month in 10 years.

Statistics for June show prices rise by 2.4% and that was before the cut in stamp duty, which is bound to have boosted the market even more. Buyers can save up to £15,000 in tax if they move before April next year, thanks to the stamp duty cut.

However, a note of caution.

The Halifax is warning that the housing market will eventually feel the effects of the current economic downturn and that the medium-term picture might not be so rosy.

It may be that the current “boom” is a catch-up of people who were planning to move anyway and the market will settle again, or even start to fall back again. The end of government support schemes and then the end of the stamp duty cut early next year will both dampen demand.

So the overall advice is to proceed with caution, get the best advice on what property you can afford and take a measured decision.

For a free, no obligation discussion on this or any other mortgage or insurance-related issue, please give me a call on 01723 384558 or 07767 692 653 or email me at mgrayshan@googlemail.com

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