UK Property - Now Expensively Cheap

Recently there appears to be an increasing number of very broad statements regarding the UK housing market that when considered for more than just a fleeting moment makes me seriously wonder...

There have been many reports and articles about the property markets over the years that conflict each other – usually from different sources, some even within hours of each other and to some extent this is to be expected given the differing interests of the sources themselves with banks, lenders, builders, landlords, politicians and their respective PR departments all wanting a piece of the action.

There comes a time though when one has to wonder if any of the statistics published are actually acknowledged by the people and companies that publish them, and indeed even taken into consideration when making business decisions that affect their business, their products and the entire market as a whole.

Recently there appears to be an increasing number of very broad statements regarding the UK housing market that when considered for more than just a fleeting moment makes me seriously wonder if the corporate world has completely lost touch with the press, PR and advertising industries.

The latest oxymoron to do the rounds is that (according to the Halifax,) "Home affordability at its best for 15 years". On the face of it, some of this is true – low interest rates have meant that mortgage payments are low at the moment compared to long term averages, both for existing and first time mortgage payers.

The (what I believe to be a fairly important) point that isn't mentioned is the outlay required to be in a situation where this "affordability" is actually of benefit to the man on the street.

House prices are still relatively high compared to earnings, so much so that according to the National Housing Federation "House prices have risen three times as much as incomes over ten years". As a result, and where the Halifax report rather falls over, is that few people can afford to get a mortgage in the first place because the deposit requirements are too high. In fact, I will go so far as to correct that slightly – requirements are arguably lower if you take into account the various "innovations" from the government like the NewBuy scheme and yet such schemes have had no real impact on the property market in either direction, nor have there been any reports to speak of that these schemes have actually had much take up by the average house buyer.

Even proposals of new schemes like hybrid mortgages dreamt up by top Bank of England mortgage lending number cruncher David Miles appears to have fallen on deaf ears, due largely I suspect to the fact that the concept will only create more problems than it will solve by supporting house prices further whilst incomes remain stagnant at best.

The problem is compounded further by not just the fact that not everybody qualifies for the government schemes but also the vast majority of the public have now realised that borrowing more than they can afford is not a good idea – despite the housing minister believing the contrary.

As a result, the whole situation serves little more than to highlight the new level of lunacy reached in the housing market.

My suspicions as to the cause of all of this initially are that the current problems primarily stem from the banking/mortgage industry and their irreverent lending over the past few years. Having said that, I read in a recent article that the banking industry was fortunate enough to benefit from a small piece of legislation a few years ago that would change the way lending was viewed and even how the money behind the banks would be used and distributed.

Unfortunately, the legistlation in question was rolled out during the 1970's - before my time in the industry, nevertheless, it will be interesting to see why and how the changes came about - if anyone can remember of course.

By all accounts it should allow a clearer insight not just into why the market is in the state it is now – but whether the road ahead is paved with polyester flares and space hoppers, or the housing equivalents of Watergate and JonesTown depending upon what my research reveals.

Whilst it's often said that history has a habit of repeating itself – perhaps it's time we learned from the present to establish where the mistakes were made in the past.

- Thursday 30 August 2012

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