The biggest medium-term risk:
Most obviously, rising inflation could lead to the Bank of England raising interest rates.
So far, the Bank of England claimed that it has no plans to raise rates. On the other hand, if they decide to raise interest rates due to current events (e.g. oil prices keep rising, labour shortage due to Brexit, etc), then there is a “long tail” of low-income households with high levels of debt – including unsecured debt – for whom even small increases in interest rates could make a material difference to their disposable income and spending power.
Assuming there’s no rise in interest rates, the market is supported by a huge shortage of supply.
Undoubtedly the stamp duty holiday and race for space added a rise of interest to the market, but we shouldn’t forget the huge shortage of supply.
Currently, the number of homes being put on the market is still not replenishing those that are sold. This had led to the most acute shortage of stock since 2015. At the same time, there is an ongoing buyer frenzy.
“The lack of supply, especially for family houses, means the market will start to naturally slow during the rest of this year and into next year, as buyers hold on for more stock to become available before making a move.”
-Gráinne Gilmore, Zoopla’s head of research
The importance of new-builds
The number of people looking to buy a property is 20.5% higher now than the average for 2020.
With the undersupply of housing, the UK housebuilding sector can play an important role. First-time buyers can purchase new-build properties through the Help to Buy scheme. And more investors are seeing the benefits of investing in new-builds, especially those within build-to-rent developments.
So, in reality, fears of a bubble look overblown. What’s more likely is cooling rather than a burst.