Mortgage lenders said on Friday that they were financing the largest house-buying spree for five years, in the latest sign of an accelerating housing market.
The Council of Mortgage Lenders (CML) described house prices in London as "resurgent", though it acknowledged that they had risen only modestly elsewhere in the country.
Amid continuing debate about the impact of government-sponsored schemes designed to make credit more easily available, research by the Liberal Democrat peer Lord Oakeshott showed, however, that the house price revival was not just a London phenomenon. Houses in more than 50 local authority districts were revealed as less affordable than at the peak of the 2007 credit crunch. Oakeshott's analysis of local authorities in England found the ratio between local house prices and local earnings was higher than it was in 2007 in districts as diverse as Rutland, the Cotswolds and the Suffolk coast.
According to the CML, almost £50bn was advanced to home buyers in the third quarter of 2013, a 17% increase on the previous three months and the highest figure since the third quarter of 2008. Despite a slight dip in September, lending for that month was up 41% on the same month last year, at £16bn.
"Indicators suggest we are witnessing the strongest house purchase performance in five years," said the CML's chief economist, Bob Pannell. "House prices too have revived, but modestly, aside from a resurgent London market."
The earlier than expected introduction of the second stage of Help to Buy, designed to help buyers with deposits as low as 5% of the value of a property, has sparked a debate about the potential for a boom in house prices.
The Bank of England has said it will keep a close watch on the markets and the terms offered by lenders, but insists a boom is not under way.
The Bank's own data showed that mortgage approvals for the three months to August had reached their h≠≠ighest level since February 2008, the month Northern Rock was nationalised, and lending on credit cards was at its highest since February 2010.
In contrast, credit to businesses continued to be sucked out of the system, contracting by £2.3bn in the three months to August.
Oakeshott said in a column in Property Week that this showed Funding for Lending was failing to help the businesses on which the government had pinned its hopes for economic recovery. Instead, he said, the scheme was restarting a "house price merry-go-round".
"The Bank of England's Funding for Lending scheme has failed so far to get desperately needed cash out to small and medium-sized businesses, but has supercharged bank lending on residential property. It's hard to imagine a worse way to rebalance the economy away from the excesses of the noughties," said Oakeshott, who runs a property fund called OLIM Property.
The CML cited a number of factors to back up its claim that the housing market was at its strongest for five years. Not only is mortgage lending rising, but homeowners took out more than 61,000 home loans in August, 15% higher than a year earlier.
"House prices too have revived over recent months, although much of this reflects the impact of a modest but more broadly based pick-up, overlaid upon what is clearly a resurgent London market. As the Office for National Statistics has recently reported, as of July house prices excluding London are a little over 1% higher than a year ago," the CML said.
Matthew Pointon, property economist at Capital Economics, said he was gauging whether current prices represented a bubble by measuring mortgage debt as a proportion of earned income, rather than against the disposable income gauge used officially.
"The authorities are taking comfort from the fall in mortgage debt as a share of disposable income in recent years. But that primarily reflects a rise in benefit payments and net interest income, as well as lower taxes. The more relevant indicator for assessing whether further house price gains are warranted is the share of mortgage debt to earned income, and that is still close to record highs."
Source; The Guardian