While the Chancellor and most government ministers are keen to avoid talk of a ‘housing bubble’, numerous high profile voices have expressed concern over the risks associated with the Help to Buy and Funding for Lending schemes – and the consequent rise in house prices.

One of the more recent figures to enter the debate is the boss of Jones Lang LaSelle, Guy Grainger, who talked about the subject in a recent interview with ThisIsMoney. He believes that due to the current undersupply of housing – particularly in London and the South East – the bubble is likely to contract rather than burst.

Grainger highlighted the need for more housing stock at all levels, and said that housing prices in the capital and the South East won’t even out until that supply is there.

As many of our unoccupied property insurance customers can attest – because they have seen first-hand the pick-up in activity across the property market – the Help to Buy and Funding for Lending initiatives have certainly had an impact. Across the South East and in London, average house prices have surpassed the £500,000 mark, having risen by 10 per cent over the past twelve months – according to data published by Nationwide recently.

Asked about the continued rise in house prices, Grainger pointed out that interest rates were a key factor. People are getting used to low interest rates, argued Grainger, but they may not be so low or stable in the future. A ‘burst’ bubble may occur, he suggested, if interest rates move quickly rather than steadily – in which case, “People might find themselves getting into a bit of trouble,” he said.

Grainger also raised the issue of London’s rapidly expanding population, which may increase by a million by 2020. The undersupply means “We’re in desperate need of development.” Said Grainger.

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