If house prices keep increasing ...

[twobears]

... what will happen in the end? We are trying to get a mortgage at the moment and, because we haven't decided whereabouts in the country we want to live, we've scoured RightMove over several counties so have a fair idea of current house prices in various regions. What I can't work out in my admittedly small brain is what will happen if house prices keep on increasing? In several places that we've looked, houses cost so much that I honestly don't know how ordinary people can possible afford them and it seems bonkers. If I look at average earnings then virtually no-one should be able to afford anything but a tiny flat in some of the more expensive areas and yet all the houses look lived in.

 

I. Don't. Understand Are the only people who are able to buy houses today those who are older/have made a killing at some point in the past on the property market/children of the aforementioned/rich foreigners?

 

For my part I have to admit that despite being almost (not quite, ha ha) a so-called Baby Boomer, I have never made money from property because I always seem to sell cheap and buy expensive. Doh

[gangzoom]

Are you looking in London? Around Leicester/midlands prices are pretty static, our house is only worth roughly 10% more than what we paid back in 2009.

 

If you need to live in London, well you are unlucky, my parents house in Enfield has more than double in price since the mid 2000s....and I cannot see it slowing down. Compared to places like HongKong, Singapore, NewYork, London prices are still cheap!!!

[coldel]

Lots of people on the property ladder making killings from the price increases - means they can size-up with large deposits (although paying off the remainder is still financially tough)

 

London has lots of micro-climates of property prices, on our road the small 2 bed terraced house next door with no front garden went for £750k, the guy bought it in 2006 for £350k by all accounts.

[350zedd]

We sold a property here in Wales about 12yrs ago and moved into rented while we looked for a smallholding with a couple of acres (cheap at the time)

This was to ensure we could do a swift deal on finding something suitable.

Immediately after selling up, the prices hiked up over the next 2 yrs and I was left unable to afford anything at all.

Ended up having to buy a plot and build my own place

[twobears]

gangzoom, yes, we'd like to live near to London but I don't think we can realistically afford to I need a house with a bit of land for my horse and other animals and they are

eye-wateringly expensive in most places down south it would seem.

 

coldel, I can see how people who have profited from rising property prices can afford to trade up but what is puzzling me is how on earth people who've not been so lucky or are just starting out, can afford a house in a decent area?

[twobears]

350zedd, that's a shame Like I said, we've never been lucky with houses either. We always seem to buy in a boom time and then have to sell in a depression. Bloody annoying that we never seem to go forward!

[350zedd]

Thats life I'm afraid.......we spent 8yrs living in a static caravan through no fault of our own.......but that's another story!

[coldel]

gangzoom, yes, we'd like to live near to London but I don't think we can realistically afford to I need a house with a bit of land for my horse and other animals and they are

eye-wateringly expensive in most places down south it would seem.

 

coldel, I can see how people who have profited from rising property prices can afford to trade up but what is puzzling me is how on earth people who've not been so lucky or are just starting out, can afford a house in a decent area?

 

They can't is the straight up answer, unless they are very good jobs. The couple that bought the house next door to us are in their late twenties but one is an officer in the air force and his fiancee is a partner in a law firm so they can afford it. If you are a first time buyer in an average paid job you are buying much further out of London or major cities, but that's life, you can't just buy into a central London house as a first property. Also depends what you call a decent area, you mean in terms of crime stats, country views, transport connections, local high street shops etc.

[twobears]

coldel, it doesn't seem right though does it? Ordinary people with ordinary jobs should be able to afford modest houses in most towns and cities but they can't. The couple next door to you both have very good jobs as you say but most people don't so how on earth can they afford to buy unless they compromise and live miles away from where they work (in which case they will almost certainly incur hefty travel expenses and possible child care costs) or are prepared to live in very run down and crime-filled areas where most of us wouldn't choose to settle?

 

I'm not really talking about me and Mr Two Bears here because we are old and, although I'm moaning (sorry ) because we can't afford a big house in Surrey with land, we can definitely afford something nice in another part of the country. I am just worried for the younger generation who seem to have been sold short in so many ways, education being another area. Maybe I'm just getting like this because it's because it's Christmas and I am feeling all philanthropic

[Jetpilot]

The UK's average house price is roughly 8+ x the average salary. How do people afford houses, i have no idea especially now gone are the days of silly mortgage offers, i guess the only thing thats keeping it afloat is the cost of borrowing, once the interest rates start to rise i would expect to see a proper property crash like a good few years ago as people just wont be able to afford the repayments.

 

I worked for a guy yesterday who has a place near Waltham on Thames, his flat has gone up 20% this year alone, not a bad chunk on 500k worth of flat.

[marzman]

I was having a similar discussion with my wife yesterday.

 

I'm pretty frustrated at the moment as we're a few months away from buying our first house. Annoyingly, our income is well above average yet we can only afford to buy a very average house.

 

For example, I know I earn more than anyone else in my family, yet we're going to be buying the smallest house out of everyone as they've all owned their houses for years. All the houses I want to buy in our area are £350k+, but I bet the people living in them are only paying about £300 a month for a mortgage. Instead, i'm having to buy a £200k house and pay £800 a month. It seems like there's a whole generation or two who have just got lucky which has led to an easy life, whereas my generation has been shafted.

 

Apologies if this rubs anyone up the wrong way, that is not my intention, just venting my frustrations.

[nissanman312]

The UK's average house price is roughly 8+ x the average salary. How do people afford houses, i have no idea especially now gone are the days of silly mortgage offers, i guess the only thing thats keeping it afloat is the cost of borrowing, once the interest rates start to rise i would expect to see a proper property crash like a good few years ago as people just wont be able to afford the repayments.

 

I worked for a guy yesterday who has a place near Waltham on Thames, his flat has gone up 20% this year alone, not a bad chunk on 500k worth of flat.

 

my flat in a lovely little vilage 10 mins from birmingham airport and all major motorway networks has dropped 5 grand since i got it!

i will be keeping this one untill i have to move then hopfully keep it on a buy to let its the only way ill get that money back

[coldel]

But the economics of people on above average salaries buying modest property in good central areas doesnt work. Population growth is immense, the available housing isnt matching it, cost of travel is high in the UK which makes central property even more premium. Theres lots of factors involved.

 

I am 40 and my wife and I are going to move next year, we will be living miles away from London with travel costs and child care costs despite good salaries - I have just accepted that as how it has panned out and where we are now. We cannot afford a modest a modest house in a city centre down here in London as we do not already own a big house here worth half a million pounds. So we will get a reasonably good house somewhere further out - we are lucky in that we have a flat already that we invested in to help but even that doesnt get us a house here in zone 3 London.

 

I get your argument marzman, my parents were paying a mortgage of £150 a month on a house worth £300k - when we move next year we will be paying nigh on £2k a month for a £400k house - but then again in 20 years time we will stil be paying £2k on a house worth £3m, its a cycle, so I am trying to look at it positively!

[Jetpilot]

when we move next year we will be paying nigh on £2k a month for a £400k house - but then again in 20 years time we will stil be paying £2k on a house worth £3m, its a cycle, so I am trying to look at it positively!

 

Proving interest rates stay exactly the same and housing continues to rise of course

[Ekona]

what is puzzling me is how on earth people who've not been so lucky or are just starting out, can afford a house in a decent area?

Simple answer: They can't.

 

First time buyers buy at the bottom end of the market, and other folks who don't have the money to trade up generally just stay where they are.

[Bockaaarck]

Sorry, this is going to be a long post!

 

I personally believe that houses or 'property', as it seems to be referred to these days, is currently catastrophically overvalued. There are clearly a multitude of reasons for this.

 

Some relates consumer confidence, economic growth during the late 90's / early to mid 00's. Some relates to changing personal circumstances of households ( 2 solid incomes, rather than a previously more common single income).

 

Some relates to more financial options being made available in terms of loans, mortgages etc. some also relates to things like the government raiding of company pension scheme's. A move by government to try and stop what it thought to be moves by companies to squirrel away money from the treasury.

 

This of course meant working people had to find alternatives to funding their retirement, who can blame them for that! Leading to competitive investment in Buy-To-Let, pushing up prices of low end or more traditional first time buyer homes. Pricing the first time buyers out of the market.

 

The introduction of the Bank of Mum and Dad, doing their best to help finance their childrens needs for a home, a home is what it should be after all. This unintentionally kept the price of homes bubbling upwards. The introduction of 'Self Certification' mortgages also, from some very unscrupulous sources.

 

Need an income of £40, £50, £60,000 a year to get the mortgage on that house you want, but only earn £30,000.....just 'self certify your income my friend, then you'll get the MIP and off you go. Meaning again, prices of what some might argue was an already inflated asset, continued to bubble.

 

The simple growth of our countries population. Naturally over time, some through immigration (economic and political). People living longer, staying in their own homes longer. Land being held by developers rather than being built on, when it could have been developed.

 

Often we are told there are not enough houses, there are not enough homes. We need to build more. Where then are all the homeless people? There must be there in their hundreds of thousands, and yet I don't see them?

 

Why is it that it seems to be fantastic when petrol comes down in price? Why is it terrific when your weekly shop comes down a few pounds? Why is it great when your holiday, your take away, your bottle if wine, your season ticket, your book of stamps costs less.

 

Yet when the cost of putting a roof over your head, or your children putting a roof over their heads, increases year on year, it's so wonderful? That seems about face to me. On the whole (in my view),very few people, as in the general man and woman on the street, benefit from high house prices.

 

I think have, again in my view, allowed ourselves to be put in a position where we pay too much for simply having a hearth and a home. If someone, or indeed a couple, working a 40 hour week, doing average paying job. Cannot afford to buy themselves a home, then there is something drastically wrong.

 

Earlier this year, the better half and I stayed in Dartmouth for a long weekend. Lovely place, especially in the summer. Ice creams, lovely scenery, beautiful boats bobbing on the river. Beautiful little houses, a lovely spot to live I imagine.

 

We spent some time on the Dart river, a trip on the paddle steamer, a tourist jaunt. The crew were very knowledgable, talking about the river, the history, oyster beds etc. they pointed out an old engineering works. A family run firm that produced wonderful boats, engines etc.

 

They told us that the site had been bought by a development company, looking to transform the site, redevelop it, add a small marina etc. They told the development would include a variety of housing, including affordable housing which would start at £750,000. The crew and passengers all laughed at that.

 

This whole situation reminds me of the Tulip Mania in holland in the 17th century. From Wikipedia

 

"At the peak of tulip mania, in March 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman."

 

Remind you of anything?

Edited December 23, 2014 by Bockaaarck

[Bockaaarck]

I forgot to add that we have had the longest period of the lowest interest rates ever recorded in this country since records began. 0.25 % interest rates are not normal. The fact we have had rates this low, for this long should prove to you that things are not what they seem.

 

I remember interest rates of 15%, I think in 1991. The difference was the cost of housing was significantly lower in relation to income. Think we can manage interest rates of 15% now ? No, neither do I, not that I think we'll get that. Think we can manage with interest rates of 2% or 3%?....

Edited December 23, 2014 by Bockaaarck

[coldel]

Interesting post Bock - I would say some of the comments in response to the above were - growth in population is not gradual or linear, it is exponential - people arent homeless, more people than ever are living at home than in their own places - petrol/food/holidays/take aways are all consumables a house is an investment which is why price increases are good - a couple on an average salary can afford a home, its just not in a desireable area where all the people live who earn a high salary...etc.

 

It is going to be a very emotive thread this - I am not saying its not tough for first time buyers, but like Dan said, they are at the bottom of the food chain in house buying terms even if they are on a reasonbable salary because so many other people out there are second or third time buyers with capital to invest.

Edited December 23, 2014 by coldel

[Bockaaarck]

I understand Col, and you're right. It can be a very emotive subject. A lot of it is the cycle of economics and we all have to be aware of that and keep out fingers on the pulse / ear to the ground.

 

My point about 100's of thousands of people not being ' homeless' is actually poorly explained. It's very much the point you made, sorry for not making it clear.

 

These people are in housing, are homed in flats, houses etc. However they aren't living in 'their' homes, as you mention, they are living with family, mates or renting. But That's someone else's home, someone else's BTL or their parents spare rooms.They just can't afford to buy their own.

 

A lot of people, due to the 'global market place', the 'mobile workforce' needs. Now work further from home than they ever have done. It's something which this new economic progress has required. Such is life of course and a lot of it is down to making a personal commitment and having the right attitude to getting a home, like a lot if us have done.

 

However the ONS survey in 2000 stated the average UK salary was £18,848. In 2012 the the ONS indicated the average salary was £26,500

The average house price in 2000 was £81,000, in 2012 it was £164,000.

 

I think this is also a significant side factor economically. As house prices increased above average wages, so people had to find a means of increasing their income . A weekend bar job, overtime, a part time job. This requirement for increasing income to meet our housing demands has, over time, made the UK a financially uncompetitive workforce. Hence organisations looking to save money outside the UK, jobs being off-shored to reduce labour costs.

 

This all has, again only in my view, had a significant impact on us all.

[Rock_Steady]

Prices are definitely inflated where I am. When I went to enquire about a new build off plan, I asked how much their cheapest 3 bed was ( i wasn't too keen to buy ) , to which she said £250.000. I said I couldn't stretch that far so she asked what I could do, I said 200.000? She said that was close enough. I mean, I hadn't even sat down and she had knocked 50k off. Practically threw the house at me.

Edited December 23, 2014 by Rock_Steady

[coldel]

Prices are definitely inflated where I am. When I went to enquire about a new build off plan, I asked how much their cheapest 3 bed was ( i wasn't too keen to buy ) , to which she said £250.000. I said I couldn't stretch that far so she asked what I could do, I said 200.000? She said that was close enough. I mean, I hadn't even sat down and she had knocked 50k off. Practically threw the house at me.

 

She faniced you!

[Rock_Steady]

I certainly hope not. She definitely had a face for radio and a belly button big enough to lose a badger in.

[twobears]

Very good post Bockaaark When I was in Yorkshire I was aware of the London 'property bubble' of course but it didn't impact on me, personally. I guess it still doesn't unless I want it to but I agree with you that house prices are grossly overinflated in many areas and I don't see how we can continue along this path. Like you say, what will happen if interest rates rise? I am old enough to remember the last boom and bust and that didn't end well for a lot of people, including some of my friends who had a huge mortgage. We were ok because we had never over extended ourselves financially. However, like I said before, we have never made a profit from property like others who were lucky enough to buy and sell at the 'right' time.

 

Weybridge, where we are currently renting, seems to have very unrealistic property prices, especially when I know what houses and flats were selling for only a few short years ago. It feels a bit like the emperor's new clothes to me and I can't see how it can continue indefinitely.

 

Interesting turn of phrase about the lost badgers Rock_Steady

[coldel]

...and people still buy at the prices they are at - so there is a demand, so the price stays as it is. I remember the 80s/90s and 15% interest rates although it was only at that rate for a month or two before dropping down into single digits once again and remember housing issues. No country is immune to this, it happens everywhere globally (except maybe North Korea!). Prices are not unrealistic as people are buying, they are just unrealistic for a quite a lot of people.

[Jetpilot]

If the average wage earner cant afford the average house price I would say they are unrealistic.

 

I work in the housing sector so see many different scenarios and types of homes. I have just done a exterior refurb on a block of 12 flats, guessing each flat was worth 100 to 120k because of the area, all but one flat was a rental.

 

I work for a client from Essex, in the few years i have known them they have spent just shy of 2 million on property, one was a holiday flat for themselves, one was bought in a new development as a medium term investment, one was bought solely to turn around for profit. They are cash rich but hardly getting any return from that in the bank, so property is a much better investment.

 

Property prices arent driven by demand, its driven by investors looking to return a decent % on savings or investors looking to boost their pension so to speak when they retire.

 

I see no way how a young couple will save a deposit and get a mortgage to fund an average property, even worse if your single, my niece and nephew as a case in point, both on their own and a fair chunk below average wage. When their Mum passed last year they had little choice but to rent, the only blessing was they had both been left some money giving them a good size deposit to be able to buy once the will was sorted.

 

The stupid thing to me is the people renting are often paying more in rental per month than they would have to for a mortgage, but their earnings wont afford them the same capital to buy!