According to the Nationwide building society, UK house prices slipped back in December, taking the twelve-month rate to 0.5%. This is something of a milestone as it means that, by the end of last year, UK house price inflation was the weakest it had been since February 2013, one month before the government’s ‘Help to Buy: mortgage guarantee scheme’ was unveiled in that year’s Budget. In May 2013, and to the derision of many, we used our UK housing market model to warn that the mortgage guarantee scheme, by substantially boosting the availability of mortgage credit, risked re-inflating the housing market bubble, delivering double-digit inflation in little more than a year; that, of course, is precisely what happened. While some now expect an imminent collapse in UK house prices, on our central projection they are broadly flat through this year. A meaningful correction in house prices, of the order of 30% or more, would require a return to pre-crisis rates of interest; and the only way we see that happening any time soon would be in response to a sharp pickup in inflation, of the kind that might follow a good old-fashioned sterling crisis…
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