Housing Market: Difference between revisions

|| This is taken from Monster recruitment measurements of salary<ref>Average Salary Information for the UK - https://www.monster.co.uk/career-advice/article/uk-average-salary-graphs</ref>. Typically it would be the salary received by somebody who has been working up to 9 years. Average salary would historically have increased by £1000 per year. As we've seen this is not the case under austerity with wage growth being stagnant.</br></br>

|'''Multiple of Salary''' || This is the average house price divided by the average salary as used by building societies to determine their loan limit. In the past this was restricted to 2.75 times salary. This was a good thing as it restricted house inflation. In countries where it is worked out on 50% deposit and then a multiple of salary, house prices are much less volatile and more affordable. </br></br>

| '''Mortgage Year''' || Typical mortgage payments on the base mortgage. For those living in leashold properties such as apartments, there will be a £2000 to £3000 annual fee on top of this</br></br>

|'''Percentage of Wage''' || The percentage of wage that is consumed in mortgage payments. This is calculated on a single mortgage payer, while in many cases a property will be bought by a couple. However it is based on gross income before stoppages, so even with two people buying a property a very large percentage of their income would be spent on the mortgage. The level of mortgage payment leaves no leeway for change of circumstances such as one party of a couple losing employment or their hours being reduced. Our work place environment is highly unstable at the moment, imposing a large risk on lenders.

'''Figure 4''' illustrates how the market crashed in 2008 and how it made a remarkable recovery.<ref>HM UK Land Registry House Price Index - https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/june2018</ref> It is historically unheard of for a market to collapse and then almost immediately recover to previous levels. This was due to the financial sector pretty much carrying on as before with large swathes of cash pumped into the sector allowing it to recover and start the whole process again by using rising house prices to provide security for deriviatives. The banks were given public money that saw them survive the crash and then through the introduction of [[Quantitative Easing]] begin to gamble and to support the gambling by using mortgages as security.

As you will see from the graph, there have been a number of dips in house prices rises since its recovery in 2009/10. It must be borne in mind that the dip of 2011 only saw house prices shrink for a short period. Since 2010 house prices have typically been in growth while wages have been in decline. When there has been a indication that house inflation has reduced the government have stepped in to ensure that the prices do not begin to fall. They have always moved quickly to boost the demand side by offering subsidies to first time buyers. The first time this was offered was in 2013. As you will see in figure 4, at the start of 2013 how price inflation was still recovering from the 2011/12 deflation.

At the introduction of right to buy the house builders so a significant increase in profits due to them adding the 20% into the price of the house. The reality being that the right to buy was a major success at propping up house price inflation.<ref>Guardian: Help to Buy mostly helped house builders boost profits 21st October 2017 - https://www.theguardian.com/money/blog/2017/oct/21/help-to-buy-property-new-build-price-rise</ref> Duncan Stott of the PricedOut group said at the time “Help to buy should really be called ‘help to sell’, as the main winners will be developers and existing homeowners who will find it easier to sell at inflated prices. Pumping more money into a housing market with chronic undersupply has one surefire outcome: house prices will go up.”

House inflation then increased to a high point in 2014 of 9%. House inflation then held fairly steady above 5% until late 2016 when houses prices began to fall away again. It is a normal reaction of the market for prices growth to steady as the multiples to wage become untenable. In 2017 Philip Hammond extended the help to buy scheme with the injection of a further £10 billion. This was despite warnings from Morgan Stanley that the previous help to buy scheme had done nothing to help house buyers, but had only pushed up new build house prices. However it was particularly important to the government to support house inflation in 2017 as the London housing market was seeing deflation of prices. It is critical to the house of cards that the confidence in the London housing market is substained. A reduction of foreign investors into the new build market in London would see the whole structure tumble.

Much of the impact on first time buyers has been covered in sections [[#House price inflation|House price inflation]] and [[#Government purposely Inflating prices|Government purposely Inflating prices]]. However the trend we will see with the present model of house inflation is ''First Time Buyers'' becoming ''Last Time Buyers''. All properties across the spectrum have seen similar inflation except for flats which have seen a lower growth. A 5% inflation rate on a house valued at £200,000 will see the house rise to £210,000 in a year, while the same increase on a house valued at £300,000 will increase to £315,000. This creates an equity gap of £5,000 between the two properties. This has always been the case, but the difference now is that those in the buying window are not seeing the wage increases that allow this gap to be filled. You can see in '''figure 5''' how house prices are running away from first time buyers and those who get on the housing ladder are chasing a larger gap to change their house to something larger when they start a family.

The other factor that has a serious negative impact on first time buyers is the level of foreign investors in the UK housing market. Not only does this push up the price of new builds (particularly in the South), it also forces longer commutes which again is a drain on the income.