Global meltdown will boost house prices

We've created a house price monster, and not even a global meltdown can stop it.

The frightening thought has struck me that the UK property bubble is actually indestructible. It simply can’t be destroyed, no matter what the global economy throws at it.

Scientists will tell you it’s not possible. Everything is ultimately destructible (due to something called proton decay, apparently). Even diamonds can be shattered, if you apply enough force.

But not the UK housing bubble.

The credit crunch couldn’t destroy it. Bizarrely, the global economic meltdown might even strengthen prices.

The bubble is here to stay. Possibly forever.

Oh Mr D’Arcy!

Everybody thought house prices would collapse in 2008. Capital Economics has been forecasting a 40% crash for the past seven years, to little avail.

Regular lovemoney.com contributor Cliff D’Arcy has been sitting in rented accommodation for three centuries, waiting for the perfect time to snap up a property bargain. He is still waiting.

True, house prices did retreat in the early stages of the credit crunch, but they only came back stronger. And they have kept on rising, even in this financially disastrous year. They are actually up 4.7% in 2011, according to recent Nationwide figures.

Prices will rise another 14% over the next four years to hit an all-time high, according to the Centre for Economics and Business Research.

By 2015, the average house will have jumped from £176,000 to more than £200,000.

As I said, indestructible.

Not so wizard in Oz

Across the West, only two pre-credit crunch bubbles have yet to burst. Both are housing markets, one in Australia, the other in the UK. Australia is set to collapse, thanks to its banking crisis. But the UK?

It won’t crumble, even with the world teetering on the brink of global depression. Nothing can shake our imperishable property market. It twists and mutates like a virus to thrive in every kind of economic condition. During the boom, the house price virus multiplied. Since the bust, it has fed hungrily off rock bottom interest rates.

The Bank of England recently hinted that base rates will stay low until at least 2013. They know the UK can’t afford a house price crash, and will keep feeding the property market beast with cheap money.

It knows that if the beast dies, we die too.

Monster munch

The property market monstrosity has plenty more to feed on. The shortage of decent property, which keeps supply tight and prices high, is a regular source of nutrition.

So is the relative weakness of the pound, which has sucked in a steady stream of foreign buyers to prime parts of London. The financial crisis has destroyed their returns from shares, cash and bonds, and they want something a little more indestructible. Like UK property.

Finally, there is buy-to-let. Today’s combination of cheap finance, stable prices and rising rents are ideal conditions for amateur landlords, who can safely walk where first-time buyers can’t afford to tread.

Accentuate the negative

Yes, prices do look vulnerable outside of London. An estimated 800,000 households are in negative equity. Unemployment is rising. Mortgage lending is static, according to the British Bankers’ Association. Finance is hard to come by, as lenders demand hefty deposits.

All of that is true. But still property stands firm.

There is one thing the UK property market cannot withstand, and that’s high interest rates. They are house price kryptonite. But the Bank of England won’t unleash them until the market is strong enough to take it.

The beast will survive.

Die, property bubble, die!

The unslayable property market monster chews up and spits out first-time buyers. But ultimately, it has us all in its sights.

The average first-time buyer is now 37 years old, going on 43. Nine out of 10 first-timers can only afford to buy with financial help from their parents, often borrowed against their own property. This will only worsen the financial and social divisions in our country.

So half the country (including me) can enjoy low mortgages and stable property prices, while the other half loses all hope of home ownership, and resigns itself to living in cramped and costly rental accommodation.

Buy-to-let only bolsters this vicious circle. Where does it end?

We have created a property market monster, one that just won’t die. One day, it could eat us all.

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