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.
Flagship Policy Brought Forward
The conservative government has announced that is it going to bring forward it’s flagship policy by three months. In what is being blamed for the surge in house prices the scheme is currently only available for buyers of brand new homes the second phase which will allow buyers of second hand homes will now be rolled out next week and not in January 2014. The government has been criticised for creating another property bubble which will push prices out of the reach of the very people it is trying to help.
The government mortgage backed scheme will help fund £130bn of lending and will also see the state owned lenders get involved with the scheme. The government has set aside £7bn for the scheme and many commentators are concerned that phase 2 of the scheme is going to push prices to unsustainable levels over the next couple of years. Unless new homes are built to satisfy the demand it is difficult to see what else is going to happen.