Is It Possible To Fix The UK Housing Bubble?
Since it seems the birth of time itself, Britain has been transfixed by house prices and the property ladder. The Housing market has ebbed and flowed for hundreds of years, but over time continues its march onwards and upwards.
The old addage that they aren’t making any more land is of course valid, and in the UK, property prices are driven by a lack of supply.
In any market where there are more eager buyers than there are sellers, prices will rise. In the UK, this continued rise has often bemused onlookers and experts alike. Apart from the occasional finance crash, mortgage supply has allowed new buyers to finance property, even when house prices outstrip average earnings.
The old school thinking was that the ‘average’ property price would follow 3 times ‘average’ earnings and until the late 1980’s that maxim held true. More recently, multiples of 6 -7 times average earnings are more common and yet unlike days of old, when those multiples would prempt a property price correction, prices have continued to climb ever higher.
Part of this was caused by the finance regulators decisions at the turn of the millenium, permitting mortgages of 6 times earnings and longer term loans or 40, 50 and even 60 years.
If banks finance the valuations then they will persist. This will continue until such time as we see a serious economic correction, mass unemployment etc. which triggers repossessions on a large scale.
We will look back on these current property valuations and ask what regulators were thinking. By which time the next generation with lifetime mortgages of 6 times income will see negative equity for the first time and start throwing their house keys back at estate agents…… let’s hope that day doesn’t come.