The housing market. What is that? For some, it’s a place to try and make money; for large house builders, it’s an economy. In its real and sustainable form, however, it’s a warm, secure home where families are created, laughter shared, pain and heartache talked through, and memories made.
I’m uncomfortable with anything other than the latter as they aren’t real or sustainable. When push comes to shove, the fickle corporate bonuses of the big corporations, or the movement of a house price will mean nothing in comparison to that security of calling that place, your home.
The last time I covered the cost of buying a home in the 海角视频 was around six months ago which showed the 海角视频’s affordability to buy a home based on price to disposable income which is an accurate way to look at it. Because house prices are high that doesn’t mean they are unaffordable, because the income might be high to match that.
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So, the lower the ratio the better. Belfast is 6.5% and London is 16.3%. Spare a thought for Shanghai at 48.1% and Johannesburg at the other scale of 1.8%.
The ‘market’ has slowed with transactions down around 20% according to Zoopla. House prices will only really fall in synch to someone’s willingness, or need to sell.
There is no need for interest rates to be used to curb inflation. The public aren’t creating it, so higher rates which are slowing the housing market for the normal buyer should return to normal if central banks choose to see the sense.
With higher interest rates, buyers are finding it difficult to see through the fog, which creates ‘worry’ and paralyses decision making. ‘Worry’ is better described as negative imagination. And so, it’s inevitable to see that when the imagination isn’t being used creatively, house buyers develop a ‘wait and see’ response which then creates stagnation of the housing market.
What hasn’t helped is lenders choosing to cut their availability for products for those buyers with low deposits. It has been a tight market for them.
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This couples with the double whammy and sledgehammer which powders a nut, which is affordability. When interest rates were 1.3 per cent a year ago, the resulting monthly payment allowed borrowers to take out borrowing of £298,000. Now that interest rates are in excess of 5%, the affordability tests push borrowing ability down to £176,000.
First time buyers are key to any ‘housing ladder’ as I’ve said in this column for 25 years. Without them, you don’t try and climb that ladder to fix the guttering.
The Skipton Building Society brought out a 100% mortgage but a key part of that lending criteria is that the borrower has to prove they have a good 12-month record of paying rent. So those children living at home saving for a deposit won’t qualify.
There is one other lender offering a 100% mortgage, and that’s Tipton with a 6.29% rate.
In 2021, Rishi Sunak created a mortgage guarantee scheme which didn’t really work. It has been talked about extending this for a further year as it is due to come to an end soon. This allowed first time buyers to purchase their first property with just a five per cent deposit. The guarantee is useful for the banks but needs to be spiced up to encourage banks to create more available products, but, in the end, it may be futile because of the affordability test.
An interesting point, however, is that rents are disproportionately higher than mortgages in certain parts of the country, so buyers are being tempted there and stretched into buying. London once again is hefty and nearly double that of Coventry, for example.
Does the government add to its ideas to use ISA savings plans to boost savings for borrowers, increase its guarantees or just let the market simmer back a little and let affordability become more real as interest rates fall?
I think it’s more likely to be all three and allow the market to calm.
- If you would like mortgage advice, please call my Mortgage Director Pat Greene on 01872 222422 or email Pat on pgreene@wwfp.net Pat will also be able to send you a copy of our Mortgage Interest Rate Guidance Report.
- Peter McGahan is the Chief Executive Officer of Independent Financial Adviser Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.