So is it good or bad news? House prices are falling – clearly there will be negative knock on effects upon the economy in the short-term, but looking beyond, it seems many will be celebrating falling house prices.
According to a recent report from Hometrack: “28.3 per cent of young working households in Britain are unable to access the very lowest rungs of the property ladder in their local market. The largest proportions of young working households unable to access the housing market are in London (41 per cent) and the South West (40 per cent).”
But then again, why would they want to? Hometrack also found that: “Nationally the cost of renting is just 68 per cent of the cost of buying a typical 2/3 bed home.”
Hometrack says: “In terms of house price to household income ratios the analysis shows the highest ratio is in London (6.11:1) closely followed by the South West (5.38:1) and the South East (4.89:1). At a local level, the analysis reveals that there are forty-two areas with a house price to income ratio in excess of 6:1. The least affordable authority is identified as Kensington & Chelsea, with a house price to household income ratio of 12.04:1. In addition a further nine London authorities have ratios in excess of 6:1. Nineteen of the least affordable areas are located in the South West with house price to income ratios ranging from 6.13:1 in West Dorset to Penwith (8.37:1). At the other end of the spectrum in 2007 there were just ten areas where house price to income ratios fell below 3.00:1.”
Professor Steve Wilcox of the University of York penned the report from Hometrack, and he said: “While house prices are falling, access to the property market is being increasingly limited by the costs and more restrictive terms of a substantially reduced supply of mortgage finance. Without further measures to restore the availability and accessibility of mortgage finance there is the risk of a severe downturn, with all the harmful consequences that this entails. Alongside other measures there is a strong case for government to promote the selective use of mortgage guarantees. These would assist key workers, first time buyers and existing households in financial difficulties as a result of being unable to refinance to escape unfavourable mortgage deals.”
Many property market insiders are suggesting falling house prices will not help first time buyers, as the squeeze on mortgage availability is counteracting the effect of lower house prices.
This may be true. But these things don’t work overnight. House prices won’t fall to bottom one month, and then go up the next. It seems more likely that when house prices reach bottom there will be a period of calm, mortgage lending will gradually be restored, and then first time buyers will climb on the ladder.
At that point, the government would be advised to gradually phase out the extent to which buy-to-let landlords can offset mortgage payments against rental income; that way, a repeat of the damaging boom we have just experienced can be avoided.
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