Hamish McRae: How to make sense of the housing market

Britain has had, over the past decade, the strongest housing market of any large developed country. Prices have risen steadily, and in some cases spectacularly. While those price rises have created problems of affordability and may now in any case be tapering off, this strength has been a huge support for the economy through tougher times. In fact the cushion of wealth generated by our strong housing market is probably the thing that has saved us from heading into recession as other forms of wealth, such as shares, have plunged in value.

Britain has had, over the past decade, the strongest housing market of any large developed country. Prices have risen steadily, and in some cases spectacularly. While those price rises have created problems of affordability and may now in any case be tapering off, this strength has been a huge support for the economy through tougher times. In fact the cushion of wealth generated by our strong housing market is probably the thing that has saved us from heading into recession as other forms of wealth, such as shares, have plunged in value.

The housing market is of course many different markets. What is happening in Sunderland is different to what is happening in Surrey. The demand may be different for starter flats and for retirement sheltered housing. The supply of new executive homes may be different from that of medieval country cottages. But what unifies British housing is the desire of people to own their own homes and the sophisticated system of home loans to enable people to meet that desire.

The proportion of the housing stock owned by the people who live there, around 70 per cent, is very high by European standards, having risen steadily since the Second World War. With the revival of the private rental market during the last 15 years, that proportion may not rise much further, but the rental market now provides a useful cushion for people are between homes, moving around the country, or are just not ready to make the commitment of buying.

This creation of a nation of home-owners that has happened over the past two generations has been made possible by a remarkably swift and unbureaucratic system of home loans. Because housing has been a stable or rising asset (with one serious exception, the early 1990s slump) the lenders are able to offer loans for a much higher proportion of the value of the property than on the Continent. Now, thanks to very low interest rates generally, they are able to offer extremely affordable rates too – indeed competition forces them to hold the rates down, particularly for first time buyers.

Is it a good time to buy, given the recent surge in prices?

It would be great to be able to give a straight answer to that question, but sadly that is not possible. Buying what will for most people be the largest single investment they make involves a responsibility that other purchases do not require. You may not get it right but you do not want to get it really wrong.

But any big investment inevitably involves risk and people should always be aware of that. The expression "negative equity" that entered popular usage in the early Nineties serves as a warning that house prices can, for a while at least, fall as well as rise.

Still, it seems a reasonable assumption that interest rates will not rise in the way they did in the early Nineties and prices in relation to incomes, in most parts of the country, are not at the top end of the post-war scale. The surge in prices of recent years is unlikely to continue – there would be serious consequences were it to do so – and prices in hot spots will surely cool. But provided economic growth continues any general collapse of house prices akin to the early Nineties seems unlikely.

Besides, people need to live somewhere and the more information they have in making that choice the more likely they are to come up with the answers that are right for themselves. In launching a new weekly section on housing The Independent is seeking to create another marketplace for readers where they can shop around, catch a feeling for trends, and make their own decisions about their future housing needs.