Ray Bolger says house prices set to fall '10% next year
Property prices lost contact with wages – and reality – two decades ago.
The average home used to cost around three or four times earnings but today it costs more than nine times earnings. That rises above 12 times in London.
New buyers are being forced to take out massive mortgages while leaning heavily on the Bank of Mum and Dad for a deposit.
At the end of 2008, the typical home cost £159,896, according to the Halifax house price index. This March, it cost £287,880, a rise of 80 percent.
Yet over the same period, wages have stagnated.
Working people lost nearly £20,000 in real earnings between 2008 and 2021 as pay failed to keep pace with inflation, TUC figures show.
That was before the cost-of-living crisis, which has made millions feel even poorer.
As I’ve written before, the house price crash should have happened 20 years ago. But they’re still rising.
Incredibly, after all the financial pain of the last 18 months, house prices edged up 1.2 percent in February and 0.8 percent in March.
It seems impossible but we all know how it’s been done, through years of financial chicanery and now there’s more to come.
The Government is considering resurrecting the Help to Buy scheme to win over first-time buyers ahead of next year’s general election.
Paul Cheshire, a former planning adviser to the government, has labelled the idea of “insane” because it will help young people buy properties they can’t afford.
There are other words for it.
The main reason house prices have left planet earth is that central bankers have responded to every financial crisis by slashing interest rates to the bone.
Just a couple of years ago, it was possible to get a mortgage charging less than one percent.
Which is also insane.
Cheap finance sent prices to the stars forcing buyers to take out ever larger mortgages over longer periods.
The average mortgage term used to be 25 years, but buyers routinely take out 35 or 40-year mortgages to give them time to clear the capital.
This hands existing homeowners (and their inheritors) plenty of unearned wealth but it’s a nightmare for new buyers.
Low interest rates aren’t the only reason for today’s manic prices.
Politicians have repeatedly pumped up the property market, knowing voters will never forgive or forget a house price crash.
During the pandemic, then Chancellor Rishi Sunak launched a stamp duty holiday and prices rocketed another 20 percent, helped by the “race for space” after the rigours of lockdown.
Then of course there’s Help to Buy.
Help to Buy was launched in 2013 to help first-time buyers purchase a new-build property with a deposit of just five percent.
The Government gave them a loan for 20 percent of the purchase price (rising to 40 percent in London), interest free for five years.
Buyers borrowed the rest from a standard mortgage lender, but were able to secure a more competitive rate because they effectively had a 25 percent deposit.
In 2017, Morgan Stanley found the scheme had cost taxpayers a staggering £10billion, most of which had gone into the coffers of the big house building firms.
Builders raised the price of developments by almost exactly the amount of money made available under Help to Buy.
Worse, Help to Buy did nothing to increase supply or reduce the housing shortage.
It is effectively a taxpayer-funded bung for the big house builders and now Ministers want to throw even more money in their direction?
I’d rather see a house price crash, even though it will hurt like hell. The more we keep pumping up prices, the worse the crash will be when it finally comes.
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