I have worked as a Chartered Surveyor in the property sector from the 70s to the 90’s. During this time I have seen the relentless upwards direction of travel of house prices as related to true affordability, based on general earnings at first hand.
The golden dream of becoming a home owner by purchasing using mortgage borrowing repayable over the next 25 years, was something that was every young family’s ultimate ambition. This has morphed into a nightmare more recently. Why?
First of all, landowners have increasingly scooped-up increasing gains on the value of the land involved – by relying on the increased amounts to be borrowed by both first-time buyers and others further up the property chains.
Secondly, the banking and finance sectors have hijacked most of the profit remaining to be found and taken a big slice of it for themselves. In other words those institutions lending capital on mortgages have annexed a greater and greater share of the profits by doing what they think they are supposed to be doing – i.e. advancing increasingly large amounts of finance. More recently, they are now even prepared to increase the mortgage term length beyond the original 25 year repayment period, moving towards 30 years or more, which is highly questionable.
Simultaneously, interest rates, which have dropped to extremely low levels at the moment are enabling buyers to over extend themselves using loans they should not be being advised to take out.
The super-rich, on the other hand, are able to utilise the same unrestricted availability of mortgage finance to outbid the rest, using the collateral they already possess. The difference between the two positions is stark.
Shared ownership schemes (part rent part buy) have begun to appear which further decrease the actual dream of owning a whole building and the plot it is built on, in one’s lifetime.
House prices are being talked-up increasingly by estate agents whose primary interest above all else is to make the sale at the best price possible.
Employment is becoming more uncertain with flexible working hours making earnings unpredictable.
The actual cost of living is going up whilst basic wages are not keeping pace.
The housing market’s core buy-prices are further adjusting to match the described ‘loosening’ parameters. This has tended to happen in the past but the graph is exponential and it is set to continue in the relatively near future because house prices themselves are pegged in a practically unregulated market. In such a heady market, those who will have over extended themselves will, as a result, suddenly find they have a big financial problem.
The more wary amongst potential first-time buyers, are understandably holding back.
Apart from being wary, the main reason for this is that asking price levels of ‘so-called’ affordable housing today, are no longer truly affordable to them.
The only solution to this pernicious problem:- is to lower the buy-in prices of housing for all owner occupation.
How? That is the question?
The answer, as provided by those in the financial sector, is to offer to build more houses to increase the supply so that prices will finally and in theory reduce!
The main flaw in this argument is that it will take many years worth of building new housing (certainly if traditionally constructed), before sufficient numbers of them could push the prices down even a little. In the meantime, builders, landowners and mortgage lenders would hope to be able to carry on making their profits unhindered!
By the time the planned massive building boom will have begun to have had any effect, the players described will have made all the profits they were hoping to make for themselves.
The other and far more applicable answer would be to make certain necessary changes to the way houses are bought, sold and let. Doing this now, alongside building more housing units, would be the ultimate and best way to restore the housing economy into good health once again.
To find out how such a significant market improvement could be achieved, please go to:
The House Price Virtuoso Solution: Full details of our proposals for properly reforming all housing markets in England and Wales.
Posted by: Peter Hendry, Housing Valuation Consultant
Author:– The House Price Virtuoso Solution