Chancellor's speech to Institute of Directors backed by some who say exceptional London prices are skewing national picture
George Osborne on Wednesday insisted he was not inflating a housing bubble, despite official data showing property prices in England have broken through their pre-crisis peak.
The chancellor told an audience at the Institute of Directors annual conference that there was no housing boom under way even though the ONS data showed the average price of a UK house has now surpassed its peak of five years ago with the average price reaching £245,000.
Osborne said he was "alert to the risks but let's not pretend there's a housing boom".
He insisted that his Help to Buy scheme, which has been widely criticised for pumping up demand and prices, was not a "weapon of mass destruction".
He was speaking as the Bank of England body charged with deflating bubbles was holding its scheduled quarterly meeting.
But the members of the Bank's financial policy committee, who may have to decide whether the chancellor's Help to Buy scheme is overly inflating the market, face a plethora of divergent information about house prices.
An analysis of 10 house price surveys shows that estimates of average prices on a national level vary from £154,300 to £252,881. They put the average price of a London home between £300,800 and nearly £500,000.
The discrepancies can be explained by differences in the way that information is gathered and measured. Some cover only homes bought with mortgages and exclude those which are bought to let out to tenants, while others are based on estate agencies expectations or asking prices posted on websites. Some exclude Northern Ireland and Scotland, or houses which have not changed ownership for more than 20 years.
This week's ONS index, which has sparked the latest debate, is skewed towards higher valued properties and developments in London. Matthew Pointon, property economist at Capital Economics, said that it has "almost certainly overstated the rise in price of a typical home".
He argued that, excluding parts of London, house prices are way off their previous peaks.
"In any event, this is a useful reminder of the challenge the financial policy committee will face when deciding whether action needs to be taken to choke off an unwarranted rise in house prices.
"Not only are regional house prices behaving very differently, but alternative house price indices can give very different signals about the strength of the market as a whole."
Many economists stress the relationship between incomes and prices – which will vary widely depending on which house price survey is used.
The FPC uses a range of price indicators including a house price to rent index based on an average of the Halifax and Nationwide indices and the rent levelscontained in the retail price index.
According to Steve Pateman, head of UK banking at Santander, there is a house price bubble in London, but it is not evident in other parts of the country.
As the Spanish-owned bank prepares to embark on a new push into the home loans market, Pateman said: "That is borne out by the statistics you can see.
"You can't argue with the fact that the London price point is at higher level than in 2008, so people will talk about whether that is sustainable and the south east is caught in that glow.
"But you are not seeing the same trends in other (regional) markets, where there is a closer correlation between local GDP and house prices".
Lucian Cook, head of research at upmarket estate agents Savills, said Land Registry had the widest sample data and unlike some measures also included cash buyers. These buyers are responsible for 35% of purchases.
Richard Donnell, director research at Hometrack, said another 6% of the market was buy-to-let, excluded from some of the indices.
Land Registry has not yet published data for August but specialist residential property investor London Central Portfolio (LCP) has bought data from the body to make it possible to calculate average house prices for last month.
LCP's calculations show UK house prices up 2.4% to £252,881 over the last year. In London there was an average August sale price of £482,141 – a 6.5% rise in the last 12 months.
Naomi Heaton, chief executive of LCP, said that the average national price figure could have policy implications for Osborne as it is above the £250,000 threshold at which stamp duty jumps from 1% to 3%.
"It will a deal a huge blow current homeowners wishing to trade up. The chancellor should urgently restructure these thresholds in his autumn statement to avoid a bunching occurring at the £250,000 mark."
Article Source : http://www.guardian.co.uk
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