UK house prices enjoyed the fastest rate of growth in January, but leading mortgage lender, Nationwide say that the low number of first time buyers is a “cause of concern.” The government backed Funding for Lending Scheme which was launched in August last year has made cheaper mortgages widely available, but with the average house
price in the UK costing £162,245, young people are still being priced out of the market.
In the past first time buyers have accounted for 40% of housing transactions with around 32,000 buyers a month in England and Wales. Since the housing market collapsed in 2007 that figure has dropped to around 20,000. Despite FLS making mortgages more accessible to buyers, banks are still demanding a 20% down payment which first time buyer´s cannot meet.
Despite the Nationwide describing the UK housing market as concerning they do believe there are “encouraging signs” thanks to the Bank of England´s Funding for Lending Scheme that allows mortgage lenders more access to more than £80bn of low interest finance. The scheme has helped to fuel the housing market in the last few
months but in doing so will also cause house prices to gradually rise.
Soaring UK house prices
The current housing situation in the UK has to be one of concern for future generations. We are currently in what has been dubbed the “Boomerang Age” whereby teenagers leave the family home to attend University, but return back to their parent´s home with huge debts and no chance of securing a mortgage. Even if they find employment increased rent prices and high repayments on student loans is a strain on their income.
The inevitability is that children will be living with their parents well into their twenties, if not their thirties. Some parents are taking out second mortgages to help get their children on the property ladder, but this could ultimately affect their retirement funds. FLS has made interest repayments on mortgages affordable for now, but they will increase in four years and is likely to cause financial distress for borrowers.
Another scenario is people who choose to rent may be doing so for years and never actually own their own property. This will decrease the value of their estate and children of future generations will not receive much inheritance. In turn they will not be able to afford their own property either. If UK house prices continue to rise and young people
are so saddled with debt they cannot afford a mortgage, future generations in Britain will never own property.
London House Prices Masking UK Economic Woes
House sales in London enjoyed the best rise in prices for five years in January. New Year sales in the capital picked up considerably and resulted in a 3.5 per cent increase on house prices in December 2012. House price in the UK capital are up to an average of £480,890, a 9.7 per cent increase in comparison to the same time last year.
One of the reasons for the upsurge of house purchases in the capital is due to executive housing developments along Canary Wharf and the old Battersea Power Station – the latter attracting wealthy foreign investors who are splashing out around £6m on the luxury apartments. Meanwhile they are driving house prices up across the city. According to recent National Statistics, house prices across the UK also saw a 0.2 per cent rise but this could just be a reflection of the steep rise in London.
It is estimated the new properties make up for 29 per cent of sales and housing market analysts representing Rightmove feel the influx will balance supply and demand. Not if they are all been snapped up by Europe´s elite as investments they won´t! Foreign investors with concerns about the unstable economic situation in the Eurozone and China helped to boost the value of London house prices in 2012. Meanwhile, many British families formerly living in London moved in boroughs in the South-East.
UK house prices predicted to climb
A new report published by the Centre of Economics and Business Research predict house prices in the UK will enjoy a 0.8 per cent increase this year and surpass the 2007 pre-crisis peak in 2014. The government backed Funding for Lending Scheme which makes loans available at affordable rates has returned confidence in the market, but is another economic crisis waiting to happen.
Critics of the scheme claim the banks have been given too much control over low-interest loans and the scheme is open for corruption. Low repayments on the loans expire after four years and could leave borrowers struggling to meet repayments. When the bubble bursts the crisis floods the country.
The steady increase in house prices since the FLS was introduced in August 2012 helps the statistics appear that the economy is growing and Britain is finally recovering from a double-dip recession. In comparison however, the British Retail Consortium published a survey which revealed one in five British families cut back on their Christmas spending last month – a fairer reflection on the economy than a rise in London house prices purchased by wealthy investors seeking profitable rentals in the UK.