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
January saw a large number of vendors looking to cash in on the booming property market. Rightmove the online estate agent said that the number of sellers looking to sell their properties had increased dramatically compared to a year ago. They also said that they have had their busiest January on record as their website received £50m hits per day or 500 hits every second. Whilst the number of sellers had increased so has the number of buyers with buyers up 50% on a year ago. People are scared that they are going to miss out and there is a frenzy out there that has been created by the Help To Buy scheme and the cheap money that is being thrown at buyers.
Some estate agents are reporting record numbers of buyers and in many parts of Britain house prices are up 10% on a year ago. Gazumping is also back and many houses that are coming to the market are being chased by more that one buyer which is also pushing up prices. Prices in London are now at an all time high of just over £450,000 which is also causing alarm amongst many commentators who believe that the government should consider pulling the plug on the Help To Buy scheme before the average price is pushed up to the 600k threshold.
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.
The Chancellor George Osborne has said that the government will change the rules on non UK residents in 18 months time. Currently the rules are deemed as unfair because a non resident UK property owner may buy and sell a property in the UK without paying any tax on ant profits. The same does not apply to UK residents who have to pay capital gains tax when they buy and sell a property and make a profit. The move has been welcomed by UK investors who have long said that the regime is unfair and favors overseas landlords. There are many people that believe that this has been a major driver in house price increases in the capital as overseas buyers look to take advantage of the favorable tax regime.
This is seen as an attempt by the government to level the playing field and to treat UK residents fairly. It is also hoped that this may reduce the demand for property in the capital and quell the price increases that we have seen so far in 2013. 60% of the homes that have been sold in London have been sold to overseas buyers and most of those sales have been purchased with cash. Whilst this will be welcomed by London property owners it is pushing Londoners out of London and London workers are being forced to commute because they can’t afford to live in the capital.
Good News For The Economy
There is further good news today from official figures that show the economic recovery is continuing and with house prices heading upwards across the country as a whole. This is indeed good news for homeowners but of course many first time buyers are still struggling to get onto the housing ladder despite the Help To Buy scheme that has been brought forward. The scheme has been welcomed by many people as the shot in the arm that the property market needs but has been lambasted by others who are concerned that there simply isn’t enough houses for purchasers to move into.
Cheap Money Is Fuelling Property Market
The recent increases have been attributed to the cheap money that is available which has had a dramatic effect on the number of buyers looking. What worries many market watchers is that the house market is pushed up to levels that are not sustainable and that interest rates start to go up and the market then takes a hit. This has happened before and it will happen again. The market would appear to be going from strength to strength at the moment but many would say that it is being fuelled by the various schemes that have been put out there by the government and the Bank Of England. Once these schemes are withdrawn and interest rates start to go up as they will inevitably have to let’s hope the government ensure that there is not another collapse.
According to the Lloyds Bank chief the government needs to reform the planning system and relax the planning rules if we are to avoid another property bubble. His comments come as the demand for properties is currently outstripping the supply of properties available to buy particularly in London and the south-east of England. Many new property developments that are being built can take up to two years just to get planning permission. This can be doubled for very large schemes and is the main obstacle in getting new houses out of the ground. The government needs to do something to speed up the planning process and make it much easier to get planning permission.
Unless more new homes are built there will inevitably be unsustainable house price increases that will create more problem for first time buyers looking to get onto the housing ladder. The government has stoked up the market with the Help To Buy Scheme but the planning rules remain the same and we are still stuck in the dark ages with the planning system according to many market commentators.
The Help To Buy Scheme that has had phase 2 brought forward by three months has not been rolled out. The building societies and banks that are taking part have announced their interest rates for the loans and have disappointed some market analysts because they are no cheaper than what is already on offer.
The industry expects these rates to come down as more financial institutions enter the market. Currently the Halifax that is still owned by the taxpayer is offering a fixed rate for two years at 5.19% with a £995 fee. RBS & Natwest currently offer two deals which are fixed for two years and five years. The two year fixed rate is 4.99% and the 5 year fixed rate is 5.49%. The mortgages offer up to 95% of the purchase price.
The banks that are taking part in the second phase of the help to buy scheme when it is introduced tomorrow could be inundated with borrowers looking to take advantage of the £12bn that has been set aside. there are currently 600,000 properties for sale that would qualify for the scheme and some market commentators fear their could be a stampede to get onto the housing ladder.
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.
Bank Of England Continues To Watch Housing Market
he Bank Of England has said that there is not a property happening in Britain but that it would maintain it’s vigilance and would take the necessary action to calm the market if it felt prices were rising at unsustainable levels. The bank has said that it had a number of tools at its disposal to cool price increases but it did not want to increase interest rates as this would choke off the recovery in the economy. House prices rose 3.3% across Britain in the 12 months to July as a whole with London steaming ahead with an increase of 10%.
Labour To Build 200,000 New Homes Every Year
Many commentators are concerned that there is still not enough houses being built to satisfy demand and that prices could rise by more than the preferred 5% per annum. They are worried that the schemes that have been introduced by the government and the bank have led to many buyers coming into the market and not enough housing stock to satisfy the demand. They are also worried that the second part of the Help To Buy Scheme which will be rolled out in January 2014 will further fuel house price inflation.
The Labour leader has said that his party would build 200,000 new homes every year by the year 2020. It is argued that this would alleviate the house price increases and would also help many families that are simply unable to find an affordable home.
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- No housing bubble, but Bank of England says it is watching closely – Reuters UK (uk.reuters.com)
- How to spot a housing bubble (killerinvestorblog.wordpress.com)