Warning signs that housing bubble may be about to burst

May 27, 2016 by Brendan O'Neill

Property Market

As property prices have soared during recent months, especially in London and surrounding areas, could it be that the housing bubble is about to burst?

As property prices have reached unprecedented levels, it appears that they may be out of reach for many borrowers, which could have a negative impact on the housing market. According to experts, house prices will only continue to increase if there is sufficient demand.

However, as landlords are being faced with tax increases, and there continues to be a lack of foreign investment, there’s very few people who can afford the extortionate property prices of the south. To afford a home valued at £500,000, a buyer would need a deposit of £50,000 and income around £100,000 a year. As most people would struggle just to save the deposit, the average property in London would be out of reach.

Another concern is that 100% mortgages are now becoming available. Barclays has introduced a mortgage where a parent deposits 10% of the property price into a savings account, which they leave there for three years. The bank will repay that with interest of 2% after that time. However, if the property value does fall, it is possible that those savings may be required to keep the house.

If house prices do fall, it may still be tough for first time buyers to get onto the property ladder, and may prevent those who have already invested in a home from moving to a larger property. Before committing to buying a property, it is highly recommended to speak to a CeMAP trained adviser.