Property prices in the UK increased by a staggering 1.1% in January, as a result of renewed vigour in consumer demand, according to one of Britainís major lending factions.
The Halifaxís most recent monthly index, which usually provides an accurate representation of the mortgage market, indicated that the average cost of a property across the UK has risen to £175,546, a substantial £2,000 more than the equivalent statistic at the end of December last year.
The news brings an end to the temporary decline experienced in the housing market during December, when the Halifaxís index highlighted that the average propertyís value had actually decreased by 0.5%, though it will likely be unwelcome to young workers who are already struggling to find a foothold on the property ladder.
This is despite the fact that the Halifax identified that on a yearly inflation comparison between January 2013 and January 2014, the rate actually dropped to 7.3%, down from its high point of 7.7% in November last year.
The difficulty in which low earners and young workers are experiencing when trying to get onto the property ladder has been attributed to a combination of soaring prices and the stagnant rate in which wages have risen in the UK over the past few years.
According to the Halifax, slow growth in the amount workers take home from their salary at a rate slower than inflation has meant that the actual value of wages has decreased in the past few years, and with property prices soaring, it has become increasingly difficult for people to afford the costs of buying a house.
The reality of this actuality is underlined by the Halifaxís statistics that denote the ratio between property prices and the average income, which has risen to a high of 4.74 this month, substantially up from the 4.44 ratio displayed at this time last year.
Despite this, Martin Ellis, housing economist for the Halifax, has suggested that it is because many workers cannot currently afford property due to the complexion of their wages that house prices have not raised at a more substantial rate.
Mr Ellis argued: “Continuing pressures on household finances, as earnings fail to keep pace with consumer price inflation, are expected to remain a constraint on the rate of growth of house prices”.
Whether lower earners and young workers inability to acquire ownership of property at the moment is necessarily a bad thing is widely debatable, considering the poor complexion of personal finances across the UK and impending interest rate rises in the next few years.
It can be argued that acquiring a high loan to value mortgage at the present time at a low rate could cause thousands of young workers a vast array of financial difficulties down the line, particularly those who have obtain interest only mortgages, as it will mean substantially higher monthly mortgage repayments when rates begin to creep towards their pre-recession levels.
This would mean that the already stretched household finances of the less affluent in the country will be even further financially strained, and would leave very little, if any, disposable income for them later on down the line unless a radical overhaul in Britainís wage landscape takes place.
That many young people are faced with an extended period of renting housing could be regarded as an entirely positive outcome, as it will give many the opportunity to improve their personal financial situation until they are certain they can afford the costs that come along with buying the house, and will act as an organic check on property prices overheating in the future.
ëLending slowdowní on the horizon
The sharp rise in property prices this month has been attributed to soaring demand, with the current low rate offerings and new found willingness of providers to accept applications being cited as the primary reasons behind renewed consumer confidence in the housing market.
Mr Ellis argued: ìWith the supply of properties being slow to respond to more buoyant market conditions, stronger demand has resulted in continued upward pressure on house prices.
“Demand has increased against a background of low interest rates and higher consumer confidence underpinned by signs that the economy is recovering and unemployment falling faster than expected.”
However, Mark Harris, chief executive of prominent mortgage broker SPF Private Clients, has warned consumers that the current trajectory of property prices will likely change in the near future, and has issued caution to those who are purchasing property on the premise that they can sell it off at a substantially higher cost in the future.
In particular, he cited the new mortgage criteria system that is set to be implemented from April this year, which will see loan providers move away from the typical income multiple systems that has been applied to mortgage applicants for many years now.
Instead, applicants will be subjected to a two-tier affordability check in which their income will first be tested against current monthly repayments and then against the same figure when interest rates rise as well.
This means that all aspiring property owners will have to be able to prove that they will be able to afford their mortgage now and in the future, with rejection the likely outcome if they fail on either of these two counts.
Mr Harris identified: “Confidence among buyers is high with regards to their ability to get mortgage finance and their belief that house prices will continue to rise so they need to move sooner rather than later.”
“With the Mortgage Market Review set to be introduced at the end of April, this will likely lead to a slowdown in lending as lenders gets to grip with the changes they need to introduce.
“Lenders are therefore trying to get ahead of the game, so now is a good time to secure a competitive deal.”
Though the introduction of the new mortgage application system will further inhibit young workers ability to acquire a home in the short term, it may benefit them in the long term as it will hopefully ebb the soaring demand levels that have been brought about from the governmentís Help to Buy and Funding for Lending schemes. This should in turn bring property prices down or at least enable them to stabilise, which means that a greater number of people will be to have property available to them that is in reach of their finances.
Moreover, it will ensure that people are not simply hooked in by the allure of low interest rates and the relative simplicity in acquiring a high loan to value mortgage at present, and instead will build up their capital wealth until they know they can sustain their mortgage repayments. Those who can afford a mortgage now will be able to acquire one, whilst those who cannot will be rightfully rejected until that time that it is in their best long term interest to so.
The current generation need to be careful and not repeat the mistakes of last by conflating capital with income, as basing their future finances around the value of their assets will only lead to an even harder crash and further personal debt difficulties at some point in the future.
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