Housing Market: Difference between revisions

<seo title="Housing Market," metakeywords="wikilab,campaign,Labour," metadescription="A look at the housing market including how prices are purposely inflated, the impact on first time buyers and how the government wishes to extract the housing wealth from the older generation." meta google-site-verification="GEeHhcxoHWZ4EbFBudyILoYe21RElCR1PFdaJs2iiS8" />

In theory, under normal circumstances, there should be a natural house price correction. Once house prices reach an unattainable level there should be a slowing down in growth. This has not be seen due to a number of factors. Firstly the government through [[Quantitative Easing]] has made vast sums of money available to the financial markets. It is in the interest of the financial sector to make mortgage loans with this money. While the money is made available to them at zero interest rates, they can loan the money out at much higher interest rates. This tends to lead to banks and building societies offering far higher multiples of salary to lenders to keep the money rolling. These loans then end up in the money markets where they multiple, based on the logic that prices will keep rising. Higher multiples, rather than helping lenders onto the housing market, tends to push up prices beyond what can be afforded. As the multiples increase the percentage of a lenders salary spent on mortgage repayments increases (see figure 3 for more details). Under the section [[#Government purposely Inflating prices|Government purposely Inflating prices]] you can see how, when the government have detected a slowing of housing market, they have introduced measures to ensure continued inflation.

'''Figure 2''' shows the actual real drop in wages if inflation is taken into account.<ref>Wage growth in real terms - https://www.theguardian.com/business/2018/sep/12/uk-wages-have-not-yet-recovered-to-pre-crisis-levels-says-ifs</ref> This shows a more realistic view of where wages are compared with 2010. The figure represents an average across all age groups and the figure is skewed by the older population seeing small drops in income. The loss in real income amongst the 30 to 49 year olds is much higher at over 7%. This amounts to £2100 reduction in salary. So in this respect the figure 2 graph understates the growing gap between wages and house prices. In the 30 to 49 age group though it may well be that they have managed to put savings aside to pay for a deposit. Also those in the 30 to 39 age group are more likely to be on or above the national average wage. Historically somebody buying a house at 30 would have expected wage growth over the following 10 years. This often meant that a couple would buy house prior to having a family and as their family grew so would their wage to ensure that the mortgage payments formed a smaller and smaller percentage of their income. With wage contraction this is no longer the case. A couple buying a house will find their income reducing as their costs rise. If there is any upward movement in interest rates, the markets are now heavily exposed to mortgage defaults. It is difficult to envisage that the UK housing market could weather a [[Brexit - Hard Brexit the Reality| hard brexit]]. Any downturn in the UK economy where families are mortgaged up to the hilt could create a cliff edge collapse in housing prices.