House Price Inflation – What’s the solution?

House price inflation is nothing new…

Ask your grandparents what they paid for their first house in the 1950’s or 1960’s, when ordinary working people began to aspire to home ownership. It will make you weep!!!

House prices have been going up ever since. The reason for this is simple – supply and demand. There are more people looking for property to purchase, than the number of properties available to buy. This has put upward pressure on house prices for 5 decades and will continue to do so until the number of properties increases to meet demand, or until society stops aspiring to home ownership for all. Neither of these are likely to happen any time soon.

So in the meantime, it poses a problem to aspiring first time buyers, who are struggling to buy their first home.

For a lot of potential first time buyers, the cheapest option is to remain living at home with mum and dad, whilst they save a deposit. This is a highly undesirable option. First my son moved his boyfriend in, then my daughter moved her boyfriend in and before I knew what had hit me, the house was full of young people, eating my food, parking on my drive, and using all the hot water!! Spare a thought for your long suffering parents – they’ve put up with you for 20 years or more. The last thing they want is you hanging around their house for several more years, so hurry up and move out!

Fortunately, there is another option, which is to move in to a rented property. Imagine my relief when I managed to persuade both of my kids to rent somewhere of their own, so that they could “have their own space”. I couldn’t have been more helpful. I hired a van, helped with the move, helped them to decorate, they think I’m the best dad ever!! And the truth is, they love having their own space, so it’s a good solution for everyone. Apart from the fact that now they spend all their money on rent, so they can’t save for a deposit to put down on somewhere to buy.

Ideally, a First Time Buyer needs a 10% deposit to secure a mortgage on a property to buy (although some lenders will accept a 5% deposit, but you need to have an absolutely squeaky clean credit history to qualify for this.) Now, property prices vary considerably across the UK. The south east has the highest average property values, with Central London prices well out of reach for most people. If you live in the North of England, prices can be considerably cheaper, for instance in Middlesborough, where a detached house will cost you the same as a 1 bed flat in Watford. There are affordable properties within an easy commute of London – Watford is a great location for commuters, which has frequent fast overground trains into Euston in just 16 minutes. A first time buyer looking for a flat in Watford needs to save a deposit £28,000 to buy a flat, or a £38,000 deposit to buy a 2 or 3 bedroom terraced house.   Either way, this is a considerable amount of money, even for a couple saving together for their first home together, and particularly if they are already paying rent.

Average property values August 2017 according to Rightmove:

 

 Flat  Terrace   Semi  Detached
Watford  281,365   385,141  489,356   826,462
London  551,390   719,469   735,950   1,228,875
Middlesborough  108,698   83,699   136,165   266,801

 

If saving a deposit proves too difficult, many First Time Buyers will again rely on mum and dad to stump up a deposit – and this is increasingly common, but relies on parents having the cash or equity in their own home to be able to give the deposit to their son or daughter, and also their willingness to do so (count me out of that, I’m planning on spending all my monies on myself!)

Shared ownership is an option, and the government backed Help to Buy scheme is worth considering, but this still requires the buyer to be able to save at least 5% of the purchase price themselves.

Is there another option, a way of providing affordable housing for First Time Buyers? Several schemes have been suggested recently, including low cost prefabricated housing solutions, where “pod” style housing units are prepared off site and delivered by road to the site, and dropped into place by crane, almost ready to move into immediately. These units are cheaper to build and quicker to construct than traditional housing, but although the idea is a good one, and properties could be affordably priced , this will is unlikely to happen in the private sector, where developers want to maximise the revenue from a new development and sell the units at market prices. So if affordable housing is to be built, it is likely to fall to local government to build it, and traditionally, properties built by local authorities tend to be for the rented sector.

I can also see a problem with this solution in the long term – if First Time Buyers were able to buy “pod” style housing at reduced prices, what’s to stop them from subsequently selling those units on at a later date at market prices – a great outcome for them perhaps, but not a long lasting solution to house price inflation.

In truth, nothing is likely to change very much for First Time Buyers in the foreseeable future. So here is my advice – try and save towards a deposit, be nice to your parents and maybe they will give you the money, consider moving to a cheaper area where your money will go further, and look at buying a smaller property – you can upscale to a bigger place in a few years, but at least you are on the property ladder.

And when you are ready to buy, come to Watford, it’s a surprisingly nice place to live!!

 

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