Can the house building upsurge last in the face of interest rate rises and buy-to-let taxes?

Photo: Jonathan Brady/PA Wire

Photo: Jonathan Brady/PA Wire - Credit: PA

House building is on the up and new policies aim to help first-time buyers. But can the good times last? Business writer SABAH MEDDINGS reports.

Photo: Chris Radburn/PA Wire

Photo: Chris Radburn/PA Wire - Credit: PA

An upsurge in activity has given a boost to the housing market.

The government has aimed to increase home ownership through initiatives such as discounted starter homes and extending the right-to-buy scheme.

Record-low interest rates have cut back the cost of borrowing - leading to lower mortgage repayments and a buoyant housing market.

But there are questions about whether a skills shortage, impending rates rise, and a new stamp duty could bring this growth to a halt.


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The government wants to increase UK housebuilding to 200,000 homes a year in the face of chronic shortfalls.

House building picked up from a 29-month low in November, and builders across the board are reporting growth.

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But house prices - although slowing - are continuing to rise and the average cost of a deposit has risen 88pc since 2011.

And in the wake of a global recession interest rates were cut to a record low in 2009. While savers lost out, borrowing became cheaper.

However any hike in interest rates would bump up the price of mortgages, which could deter buyers, and force those on a tight budget to sell.

If more people are selling an existing home, there are fewer reasons to build new properties.

The US Federal Reserve raised its interest rates a quarter of a percent to 0.5pc in December, and some questioned whether a Bank of England rise was to follow.

But James Watson, senior lecturer in financial economics at the University of East Anglia, said while a hike in rates was bound to have an affect on mortgage repayments, it was unlikely to come in the near future.

'The interest rate rise is not going to come too soon, possibly not even this year,' he said. 'And if and when it does come, it comes relatively slowly for another year or more, probably this is not going to become desperately unaffordable.'

'It seems to me the bigger problem is getting the deposit together.'

He added events in the last couple of weeks, including falling confidence in the Chinese economy, was pushing the rise even further away.

But other policies could pile the pressure on house buying.

When George Osborne announced a new stamp duty for buy-to-let landlords and second homeowners, he handed a 3pc head start to first-time buyers and those with one home.

But some have said this will turn potential buyers into sellers, and flood the market with additional supply.

The rapid growth of buy-to-let during the last 10 years could slide into decline.

Andy Fretwell, of the Eastern Landlords Association, said those investing in property could decide to put their money elsewhere.

'It may well disincentivise individuals who are maybe thinking of getting a buy-to-let property,' he said.

But Arnolds Keys managing partner Guy Gowing said the government was trying to restore the traditional pressures to the housing market with the 3pc premium for buy-to-let buyers.

'First-time buyers have been pushed out of the market,' he said. 'In the long term it is a good thing.

And he said the market could withstand a rates increase. 'The strength of the housing market is better with low rates, but it has been at an artificial level for so long,' he added.

'I think it is very positive. The housing market and economy in general is buoyant enough to withstand some small interest rate rises.'

How is the market affecting your business? Call Sabah Meddings on 01603 772879 or email sabah.meddings@archant.co.uk

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