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
Fri, 23 Nov 2007 14:30:00 GMT
It's often said in the media that "renting is money down the drain" or that "rent is dead money". This is true, to the extent that you never get the money back. But the same can be said of mortgage interest, which for most people makes up a significant proportion of their mortgage payments. In fact, on a 25 year repayment mortgage, nearly 80% of the mortgage payments in the first year will be interest - money down the drain.
On this basis, a fair comparison between the cost of renting and buying is to compare the monthly costs of renting versus the monthly costs of an interest-only mortgage. The graph below shows the average UK monthly rent and the average UK mortgage interest payment, based on an interest-only mortgage on the average house price, at average mortgage interest rates. The figures used are taken from the DCLG, CML and Nationwide.
As can be seen from the graph, the costs of renting versus buying have been pretty well matched over the last decade, up until a few years ago. Now, thanks to the rapid rise of house prices and a slight increase in mortgage rates, it is around 1/3rd more expensive to buy.
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Tags house prices, housing market, interest rates, mortgage, rent, stamp duty | 1 comment | no trackbacks
Posted by admin
Mon, 19 Nov 2007 10:12:00 GMT
This is, again, a very complex question and one that is often oversimplified by the media. The average article on housing prices in the mainstream press will usually conclude that:
While short term price dips cannot be ruled out, housing is a good investment because prices always go up in the long run.
While is is true to say that, over the past century, house prices in the UK have risen at marginally above the rate of inflation, there is no guarantee that this will continue.
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Posted in Main, Market Myths | Tags demographics, house building, house prices, housing market, inflation, peak oil | 2 comments | no trackbacks
