The current rate of house price inflation is not a major concern for the Bank of England as a property recovery was expected.
As the wider economy has improved the Bank has expected the property market to recover driving house prices higher.
According to Ben Broadbent, a member of the Bank’s monetary policy committee (MPC) the amount of credit growth is the key indicator of an overheated property market and this is not causing any alarms.
There has also been a 33% increase in the number of new-build homes to meet the demand of a buoyant property market.
The increase in new-build homes can benefit first time buyers and home movers with access to a greater supply of suitable properties to buy.
Controlling mortgage supply
In order to control the supply of mortgages to first time buyers, home movers or remortgage buyers, the Bank has withdrawn the Funding for Lending Scheme (FLS) in January.
The financial policy committee (FPC) has other measures it can use such as imposing limits on the loan-to-value ratio people can have to get a mortgage or forcing banks to hold more capital as security against mortgage loans.
In the future interest rates will rise and a moderate rate of the rise will be more important than when it starts. Broadbent says it is likely rates will peak below the pre-financial crisis level.
The Council of Mortgage Lenders (CML) has said the number of new mortgage loans to homeowners has increased by 27% year on year in the first quarter of 2014. The number of loans to buy-to-let investors increased 46% over the same period.
For older homeowners there is higher activity with equity release mortgage buyers accessing cash in their property with a lifetime mortgage to repay an interest only mortgage or improve their quality of life.
New-build homes increasing
The government has released data showing the number of new-build homes started has increased by 33% at the time of the new Help to Buy scheme launched in April 2013.
Even so there has only been a 4% increase in the number of new-build homes completed suggesting it will not slow house price rise in the short term.
The rate of new homes built in the UK has lagged behind demand for many years. A decade ago a government report recommended 210,000 new-build homes a year are needed to meet the demand and keep price inflation at 1.8%.
However, to the end of March 2014 only 133,650 new homes have been started and this is the highest number since 2008.
For buy-to-let investors the rise in new-build homes can be an attractive purchase if the yields from rental income improve on other types of investments.
The number of completions has steadily reduced since the start of the financial crisis and the governor of the Bank of England, Mark Carney, has said new-build homes was the best way to prevent a house price bubble.
What are your next steps?
Call our LCM mortgage brokers if you are a buy-to-let landlord with a property, remortgaging and want the best mortgage deal, buying your first home or you are planning to move home.
Start with a free mortgage quote or call us and we can take your details. Learn more by using the mortgage cost calculators, property value tracker chart and equity release calculator.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your home to spend on anything such as home and garden improvements or even pay university fees for grandchildren.
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