House Prices Continue to Rise GBP Exchange Rates

It has been confirmed by the Office for National Statistics (ONS) that UK house prices have risen by 6.8% compared to the same time last year. The rise in the average house price in the UK can be largely attributed to London and the South East which actually skews the figures quite significantly. However, despite this the figures show that the housing market is expanding rapidly and as I have written about before on this currency blog this in the short term could be seen as a positive. Higher house prices generally encourage people to sell their property and the more fluid the property market is results in more money flowing through the economy which helps stimulate growth. This is why Chancellor George Osborne at his recent budget was quick to emphasise how the government where working on new houses schemes with property developers such as Barratt Homes and how they were also continuing with the Help to Buy scheme which is providing assistance to those people that are struggling to get onto the property ladder.

However, Mr Osborne also stated in his budget that the Government would be keeping a close eye on the housing market as there is still a fear that with property prices rising too fast it could lead to another housing market crash which would be disasterous. If property prices continue to rise at a fast pace (6.8% is a fairly substantial rise in one year) then it will mean that properties become unaffordable and as a result the demand from people wanting to buy properties will significantly reduce and so to sell properties prices have to be lowered dramatically potentially leaving many people with negative equity.

So, in the short term a strong housing market is good for Sterling exchange rates but should the rise in house prices continue at an unsustainable level the it could result in a more long term damaging effect on the economy. It will be interesting to watch the development of this story and whether the government will intervene, there have been some comments that the help to buy scheme may be just adding fuel to the housing market fire and actually may do more harm than good but while house prices are rising everything seems rosy but the question is how long will this last?