Are low interest rates here to stay?

As a homeowner (there are a few of us around), I always feel slightly smug when I find that house prices have gone up again.

Ian Errington
17th May 2016
Ian Errington Blacks Connect

What a great investment I made, buying that house to live in? I’m sure I’m not the only one that feels like that. Of course I’d only reap the financial rewards from this wonderful news if I was selling up and moving somewhere that hadn’t “benefited” from similarly elevated property prices. As my kids are still at school, and I practise property law in West Yorkshire, that’s not going to happen any time soon.
 
As lawyers, or those running a legal business, my partner David Gilman and I are more bothered about transaction volumes than house prices, as that’s where we earn our fees. In a perfect world confidence inspiring but affordable house price increases lead to lots of transactions and a housing market purring like a finely tuned sports car.
 
Those considering government policy regarding the housing market over the past few years (and mainly since the UK economy’s near death experience at the end of the noughties) would be forgiven for wondering what on earth is going on. Help to Buy, low interest rates, more Help to Buy, stamp duty changes, starter homes, taxing those evil buy to letters, the list goes on. It feels like they’re making it up as they go along. Which of course they are.

Record low interest rates have created a beneficial environment for house prices to rise. There are mortgage deals around now that could only dreamed about when I bought my first house. Its the affordability levels that are a bit of a nightmare, and hence the need for specifically targeted government policies to help first time buyers, like the soon to arrive starter homes (more on these in a few weeks time) and Help to Buy ISAs. Expect more of these policies going forward.
 
Low interest rates have been one of the drivers in house price growth. In my view they are here to stay. The other, which is probably now at least as important, is one of the first things GCSE economics students learn (or are taught); basic supply and demand theory. In a nutshell, if demand is high, and supply limited, prices will remain high. Between 2009 and 2014 the UK population grew by three million. The ONS project another 2.3 million increase between 2014 and 2019. They’ve all got to live somewhere. Following our school taught basic economic theory, that means demand will remain high. Unless housing supply massively increases above the current rate, it’s not hard to guess where prices are going (to stay). This is all good news for those of us involved in the industry.

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