- 13
- Jun
Britain is now facing a very real possibility that the property market could go through a painful correction at best or at worst a full blown price crash that could potentially wipe as much as £50,000 off the value of the average British property in the coming years.
There are a number of reasons for justifying the realistic probability of a house price crash. First of all there is the fact that the average home in the UK now cost roughly £200,000 – that’s nine times the average income of the UK which is currently at £22,000 per year. In the mid 1990s the average price was only 4.5 times the average annual income, and this was at a time when the country was recovering from low unemployment, and cheap loans were not on offer to everyone.
Now that the cost of living is rising so sharply, fewer people can afford to consider moving up the property chain. With fuel and food prices going up and home loan rates so high, more families are looking to cut back, rather than expand.
One argument against the crash theory is that Britain is a small island with a large number of people seeking homes because of immigration and smaller family units. The argument basically goes that there is very strong demand for housing while supply continues to remain very weak, thus pushing up prices.
However this paints a false picture, according to the Home Builders Federation. The HBF say that the stock of new properties built since mid-2004 have been more than adequate to meet demand. Also if houses were in such short supply than we should also have been witnessing a large rise in the cost of renting a property however this has not happened until recently.
In the past 10 years house prices have gone up by 10% a year while the cost of renting has increased by only 3% or roughly the same pace as the rise in the cost of living. This is all about to change, however, as thousands of buy-to-let investors pull out of the housing market, leaving a smaller pool of rental properties.
Despite the coming increases in rents, investors with buy-to-let mortgages are facing the same high interest rates as the rest of the housing market and are unable to wait for rents to rise for fear of defaults and repossessions.
