Posted by admin
Mon, 24 Dec 2007 15:01:00 GMT
Over the past few years there appears to have been a lot of concern amongst young people that if they do not get a foothold on the "housing ladder" sooner rather than later, that they will somehow be priced out of owning a home forever, or "miss the boat" - the boat in question being affordable owner-occupied housing. But is this a genuine risk, or are they worrying unduly?
Over the past century the housing market has both risen and fallen, in both nominal terms and real terms. When the level of initial monthly payments for a mortgage on the average first-time-buyer type house is measured against wages, the peaks and troughs in the housing market are clear to see. There have been times when housing has been more affordable, or more expensive, than other times, but in the past affordability has always corrected itself to move back to reasonable levels before too long.
The main reason for this is that the housing market is fundamentally supported by new buyers entering the market. These provide the cash to support each level of the housing market, from small flats up to large family houses. If this support is removed, or weakens, then demand at all levels of the housing market is affected and prices correct downwards. Alternatively if wages are rising faster than house prices, this also has a corrective effect on affordability.
In recent times the number of first-time-buyers entering the market has fallen to record lows. In 2007, just 300,000 first-time-buyers entered the market, the lowest since 1980, according to the Halifax. Halifax also found that houses are unaffordable to first-time-buyers in 96% of towns. This has only been made possible by the recent phenomena of "buy-to-let". This is essentially a new source of demand that has been made possible by the availability of credit in the form of buy-to-let mortgages, which were not available until the mid 1990s. In the past 10 years the number of buy-to-let mortgages outstanding has risen from a base of virtually zero up to nearly 1 million today.
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Posted in Main, Market Myths | Tags affordability, buy to let, first time buyers, house prices, housing market, interest rates | no comments | 1 trackback
Posted by admin
Wed, 28 Nov 2007 17:29:00 GMT
It is often said that if you are buying a house to live in then you should think of it as a home, not an investment. In other words you should be more focused on finding a house that you like, than what is likely to happen to its value in the future. This is broadly a sensible approach - a house, after all, has to be a place that you are content to live in, and will have a considerable impact on your future happiness and well-being.
There is, however, a danger inherent in the statement. Buying a house is, for most people, the biggest financial decision of their lives, and the impact on their finances should be considered very carefully.
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Posted in Main, Market Myths | Tags buy to let, capital gains tax, empty homes, house prices, housing market, housing shortage, investment, property investment | 2 comments | no trackbacks
Posted by admin
Wed, 21 Nov 2007 12:23:00 GMT
In recent years there has been a significant rise in the number of people who are choosing to use property investment as a means of provisioning for their retirement. The growth of the "property is my pension" brigade has been marked by a massive increase in the number of buy-to-let mortgages, from 185,000 in 2001 to 850,000 in 2006 (a near five-fold increase in five years) according to the CML. The chart below shows the change in the total number of mortgages outstanding since 1998 - as can be seen, most of the new mortgages that have been added since then have been buy-to-let (there are now 900,000 more buy-to-let mortgages, but there are only around 100,000 more non buy-to-let mortgages).
To put these figures in context, there are around 11 million mortgages in Britain, so the proportion of buy-to-let mortgages has risen from 1.7% to 7.7% in five years. This has, broadly speaking, been put down to two factors:
- The loss of confidence in traditional pension schemes, particularly since the 2000 dot-com bust and 50% fall in the value of the stock market.
- The large rises in both nominal and real-terms house prices since that time, and the associated media coverage.
The increase in the number of people buying second homes to rent out, as demonstrated by the increase in the number of buy-to-let mortgages outstanding, is nothing short of phenomenal. Given these figures, it would not be an exaggeration to say that Britain (or a large number of its residents, at least) is now a property-obsessed nation. The number of house-buying programmes on television is testament to that, and there are now enough to fill entire channels dedicated to property related programming.
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Posted in Main, Market Myths | Tags buy to let, housing market, investment, pension funds, pensions, stock market | no comments | no trackbacks
