If average earners are to get on the housing ladder they would need to have seen their wages more than double over the last decade. This is despite the crash in 2008 and the subsequent problems that this brought with it. The property market has seen a significant recovery in prices whereas wages have seen very little growth. This means that property values are now totally out of sync with wages and average earners in London would need to see wages increase by £100,000 per year in order to buy in some parts of London. These figures have been put forward by Shelter, the housing charity that have carried out research from 1997 to the present date.
Since 2003 house prices on average have gone up by £1000,000. This compares to the annual average salary that has risen by just £6,750. If you take London and the south-east out of the equation the average house price across the country has risen by £73,000. You can see why house prices look very inflated when wages growth has been so low. Average earnings have a long way to catch up and house prices look as though they will continue to rise further particularly if there are not enough new affordable homes being built to satisfy demand
The government’s flag ship policy Help To Buy Scheme has been slammed by PricedOut. The organisation which campaigns for more affordable housing said that the whilst the scheme had help just under 19,000 first time buyers get onto the housing ladder a further 245,000 were now unable to buy a home because prices had spiralled out of control. The group has calculated English Housing Survey’s income profile of private renters along with figures from the Office Of national Statistics on the latest house price index to show that three-quarters of private renters could no longer afford to buy their own property.
This is on the basis that a borrower would not borrow more that four times their income. With house prices predicted to rise by a further 8% in 2014 and wages growth not likely to increase significantly there is more concern that more first time buyers are going to be locked out of the market.
Although there are other factors that are pushing up prices the shear volume of buyers that are out there along with the lack of new homes being built the Help To Buy Scheme may have the opposite effect of what is was rolled out for. Instead of helping buyers get on the ladder it is actually inhibiting borrowers from buying. Of course there are two sides to this and many commentators have said that the Help to Buy Scheme has been the main driver for the housing market and has pulled the country out of the recession but this still doesn’t help those that still can’t afford to buy.
First time buyers have returned to the property market in abundance according to figures releases by the Council Of Mortgage Lenders (CML). According to new figure the number of first time buyers are taking out the larger proportion of new home loans than at any time since the start of the century. The figures also showed that buyers were having to put down a 20% deposit and need to take on the biggest multiples of mortgages than at any time since 2007 just to get on the housing ladder. Buyers are having to take out larger loans because house prices are increasing faster than at any time since 2007 and many commentators are concerned that we are seeing prices increasing too quickly which could cause problems if they continue.
Despite the increase in the number of sales going through the number of transactions is still well below the peak of 2007. there are concerns that borrowers are taking on too much debt to get on the housing ladder. Typically borrowers took out loans worth £114,000 or 3.33 of their salary. This figure is an increase on 2012 which saw an average of 3.26 times annual salary. The figures show that apart from 2007 the levels of borrowing and multiples of income are now at their highest levels since records began in 1974. In 2007 the figures were 3.36 times salary. This in itself should start to ring alarm bells but the government will not be doing anything too drastic particularly with a general election just around the corner.
House prices in London are continuing to show strong growth even though the Chancellor has slapped a tax on non-resident foreign investors. The introduction of the new tax which will mean that foreign buyers will be subject to the same tax laws as UK residents has done nothing too dampen down the market which is steaming ahead. There is some speculation that the government may reduce the limit on the purchase price on the Help To Buy Scheme which is currently set at £600K. Some commentators believe that reducing the limit to £300k – £400k may have an impact on prices particularly across the south east. We shall have to wait and see.