Those with a good memory will recall that both the Irish and Spanish financial crises had an over-heating property market at the eye of the storm. In the UK, the average house price is a shade under £216000 and average household income is $26300 (median value, Office for National Statistics). The house price index has steadily risen since 2012 from a little over 500 to stand above 700 currently. Earnings have not kept up with house price inflation.
Current data suggest that the UK house price has increased by 2.1% in the year to April whilst weekly earnings rose by 2.4% and inflation generally hit 2.7%, making homes less affordable overall. The rate of increase slowed last month, for the third month in sequence, recording a drop in April of 0.2%. The current level of annual house price rise is the weakest seen since 2013 and three successive months of declining house prices has not been seen since 2009.
At some stage, either as a result of higher inflation or simply in order to provide room for manoeuvres, Bank of England interest rates must rise. Such a hike would be passed on to mortgage borrowers, making repayments dearer and inevitably forcing some homes into foreclosure for those maxed out currently. Should this coincide with bad news on the Brexit front (and it is hard to imagine any good news on it), it has the potential to lead to a sharp downwards realignment of the house price.
The rate of new mortgage approvals also dipped last month by 2% with 64645 new loans approved, representing a seven-month low. Some evidence suggests that “Buy-to-Let” landlords made purchases earlier to avoid a new tax which came into force in April which led to the depressed April figure.