Estimates of house price inflation may not be as huge as some industry commentators suggest, because...
Estimates of house price inflation may not be as huge as some industry commentators suggest, because most homeowners are adding that value through home improvements, says the latest research.
Findings of Legal & General's latest Moving Intentions survey intimate widely-quoted house inflation indicators are misleading or distorted because they look merely at properties which have been sold, and do not take into account improvement work that consumers may have done on their properties.
Research conducted on 1000 homeowners between 27th and 29th September by BMRB says people who bought their homes in the last two years have spent on average 5% of what they paid for the property on subsequent improvements.
Yet this home improvement factor is not discounted when figures for the growth in house prices are published, points out L&G.
Likewise, homeowners are less than confident that interest rates will stay low and house prices will continue, contrasting data from some of the larger economic assessments.
Almost half (48%) of those questioned in April 2002 now expect interest rates to be higher in 12 months time than now compared to 34% who held this view in April, when analysts believe the Bank of England may cut interest rates by the end of the year.
Evidence also suggests confidence in climbing house prices has dropped too as just over half (53%) believe prices will keep climbing, compared with 73% in April, says Stephen Smith, L&G's director of housing marketing.
"Most people like to undertake some changes when they move into a new home. Improving the quality of homes in this way is good for the UK's housing stock generally. Comment on the continued rapid rise in house prices distracts attention from this improvement in housing quality.
"But concerns remain though that rapidly rising house prices are making it difficult for first time buyers and key workers to buy properties", continues Smith.
"However there are signs in the market that as the rate of house price inflation slows down, affordability is improving. We expect over the next year that house prices will rise by around a more modest amount - perhaps 5 - 10%", he adds.
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