The booming British property market may follow Australia's lead and slow gradually, an industry report said on Tuesday, even as policymakers have started warning that prices could fall.
The UK housing market, which has seen the average price of a home more than double since the late 1990s, is vulnerable to potential interest rate shocks given the amount of debt that households have taken on in recent years, the report said. The Royal Institute of Chartered Surveyors' warning comes as Bank of England policymakers are showing growing impatience over soaring house prices and the abandon with which many Britons are willing to get themselves into debt to buy homes.
While there have been tentative signs that UK mortgage borrowing is pulling off record rates and that house price inflation is beginning to moderate, many, including BoE Governor Mervyn King, are warning that prices may fall and not just rise at a slower rate.
"The UK housing market is vulnerable, like Australia, to a slowdown because of the huge rise in debt levels and the associated burden this represents in terms of mortgage repayments," RICS said, though it added "it is far from clear that the market is about to crash".
What is clear is that central bankers at the BoE are worried that the property boom, if not cooled swiftly but in an orderly way, could do damage to their respective economies.
The Reserve Bank of Australia put rates up twice in November and December but has since left base rates at 5.25 percent, saying recently it believed house prices were falling. It is expected to leave rates steady on Tuesday.
The BoE, meanwhile, is also expected to leave rates steady at 4.50 percent at its meeting this week although nearly every analyst in a recent Reuters poll predicts a hike in August. Markets are expecting rates to hit 5.25 percent by year-end.
Australia's and Britain's economies have much in common with each other than recent house price inflation. Unemployment is at multi-decade lows, economic growth is strong and both countries are well into a cycle of climbing rates.
Households are similarly up to their ears in debt, with average total amounts owed equal to more than 120 percent of household disposable incomes and total payments on debt, including mortgage payments, close to their last peak.
What Australia does not share is a lack of space in which to build new homes - often cited as a fundamental factor that is propping up the market in Britain, where the number of new homes being built is at the lowest since World War Two.
And a greater proportion of Australians have property as an investment compared with Britain, leaving prices there more vulnerable to a sudden swing in sentiment, RICS said. Growth in UK buy-to-let properties, however, has surged in recent years.
"Australian households have seen the burden of interest payments on mortgages and other loans rise back to the levels last witnessed at the height of the previous housing market boom," the report said.
"As such, the demand for housing could take a serious knock if interest rates rise much further."
Comments
Comments are closed.