Are house prices making the right move?
Michael Wagstaff • 20 October 2020
Ever increasing house prices are good for some but not for others
According to the property website Rightmove, the price of properties coming onto the market is at a record high. An increase of £3,500 in September saw the average list price grow to £323,500. Year on year prices have increased by 5.5% which is the highest annual growth for four years.
Rightmove is now forecasting that the average asking price will increase by 7% in the year to December. They called their previous forecast of a 2% increase 'timid'.
Higher asking prices are being fuelled by the release of pent-up demand following lockdown, the stamp duty holiday on properties up to £500,000 and people making a lifestyle choice to move away from cities for more space in rural areas and the coast.
While rising house prices are great news for some people. But for others they are very bad news as they push up the cost of home ownership and take it out of reach altogether. As a result many young people, couples and families find their housing choices limited, their economic mobility reduced and mortgage repayments unaffordable.
Housing affordability is a huge problem in certain parts of the UK.
My rule of thumb is that anything up to 25% of net income (take home pay) is an affordable housing cost. On this measure large parts of the UK are unaffordable for first time buyers.
And for some regions the numbers are scarily unaffordable as the chart shows.
FTBs in London are handing over half their disposable income to pay the mortgage. Buyers in the south east and south west are spending over one third of their income.
Some might argue that there is a lot to be said for a housing market where prices are 'timid' especially if it encourages greater choice, greater affordability and greater quality.
High house prices and low affordability are just not sustainable in the long term. Isn't it time for a rethink on what society wants from housing before prices move right out of reach?
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