The UK property market has been a source of much debate for years now. Prices have kept on rising since 2009, and this year in May for the first time the average house price in Britain topped the £210,000 barrier. Of course, prices rising is good news when you own a property and can afford your mortgage, but bad news for those trying to enter the property market when prices are much higher than incomes can afford.
This is something that has been discussed a lot, with a lot of current renters hoping for a drop in house prices so they can afford to get on the ladder, and home owners dreading a drop in the value of their homes. The housing market also directly feeds into UK economics, and those who follow the rate of the pound will know that there is already plenty to worry about there.
Incomes versus house prices hold the market in a kind of delicate balance, and an upset to that can be economically devastating.
Are Current House Price Rises a Worry?
The housing market at the moment has been slowing down in some areas of the UK, however recently the housing market analysts Hometrack upgraded their expectations for price increases in major cities, which include places like Leeds, Birmingham and Manchester, to 7% for 2017.
This is notable because in December 2016 they had set their predictions for the year for these parts of the UK at 4%. The slowdown anticipated as we entered the very uncertain times running up to Brexit does not appear to be happening as they expected, and with more people moving into cities in an uncertain job market and creating demand for housing, prices are rising sharply.
The market stagnates when people cannot get onto it, or can’t afford to progress up the ladder even as their incomes increase. At present, many first time buyers are looking to have to save as much as £33,000 just for a deposit, and when compared to average incomes this just is not viable – at least not quickly and not while also paying high rental prices.
When people cannot afford to enter the market due to high prices, the market stops moving as there need to be first time buyers to keep the chains alive. When the market stagnates, people have no choice but to lower asking prices if they do want, or have, to move.
At the moment, mortgages are competitive and affordable, and this is what is sustaining the housing market despite the big gap between incomes and property prices. However, there is a lot of speculation that the Bank of England may raise interest rates to curb inflation, and this will make it harder for people on variable rate mortgages to pay them.
All of these factors, when added to the possibility of Brexit induced recession, mean there is a significant risk we may see prices start to fall. This may even be at the same scale as the crash in 2008, where prices came down as much as 40% (though due to the economic crisis, many first time buyers couldn’t take advantage due to low incomes).
More on Brexit
Crisis of Democracy: Majority Domination and the Rise of Populism
“[G]overnment of the people, by the people and for the people.” Abraham Lincoln Different models of democracy have a different...
How Britain Can Avoid a Post-Brexit Race to the Bottom in Labour Standards
William Brown, University of Cambridge and Chris F. Wright, University of Sydney There is a risk that Brexit could erode...
Airbus Departure? Five Things You Need To Know To Understand Its Relationship with Britain
Airbus has warned that a no-deal Brexit could force the aircraft manufacturer to close its UK operations, which, among other...