European Commission ventures opinion on UK economy - SBCA Chartered Accountants

European Commission ventures opinion on UK economy

By 10th June 2014Uncategorized

In March 2014 the European Commission published a report entitled Macroeconomic Imbalances United Kingdom 2014. The text includes a few observations on the UK property market that have been greeted with less than enthusiasm by the UK Government.

The report includes the following introduction:

“The United Kingdom continues to experience macroeconomic imbalances, which require monitoring and policy action. In particular, developments in the areas of household debt, linked to the high levels of mortgage debt and structural characteristics of the housing market…”

The report points out that:

  • House price inflation continues to outstrip the Consumer Price Index by a wide margin.
  • The main driver of house price inflation is demand for properties outstripping supply.
  • The Government Help to Buy scheme and continuing low interest rates have increased availability of mortgage funding.
  • House price inflation is highest in London and the South-East. Property owners in other areas of the UK would be particularly vulnerable to interest rate increases.

Recommendations to deal with the potential over-heating in the UK property market include:

  • Increase the supply of housing.
  • Reform of the Council Tax system
  • Release of more land for development

The concluding statement of risks associated with the property market are reproduced below:

“In conclusion, levels of activity remain below previous peaks.  Nevertheless, house prices are rising and the increase in prices and level of activity is likely to be reflected in rising levels of mortgage debt (and that rise is occurring from an already elevated base). The main risk on the demand side is households' vulnerability to a rise in the cost of borrowing while the response of the authorities has mitigated risks associated with an excessive lowering of credit standards. The main risk on the supply side is that reforms to the planning system and other initiatives to increase supply do not deliver increases in new housing of the amount required, or do so sufficiently quickly, to forestall further rises in house prices and mortgage indebtedness.”