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Housing market may not recover from financial crisis

by Michelle McGagh on Nov 23, 2011 at 07:56

Housing market may not recover from financial crisis

Owning a home could be put further out of reach for many Britons as the Bank of England has warned the housing marketing is unlikely to recover from the financial crisis.

Bank of England Monetary Policy Committee member David Miles said there is a possibility that house prices will not return to the pre-recession levels a banks are more reluctant to provide loans, according to The Telegraph.

He added that people may have to wait until they are in their 40s to get a sufficient loan to buy a property, although he said he did not ‘think we should regret’ the changes to the housing market caused by the crisis.

‘Housing markets and mortgage markets have been close to the centre of the economic and financial turmoil we have lived through over the past four years,’ said Miles, who headed up an official inquiry into the mortgage market.

‘I do not believe that the housing market and the mortgage market will get back to where we were in the years leading up to the crisis. I also do not think we should regret that.’

He added: ‘It will take time for first-time buyers to accumulate larger deposits, so they will typically buy later and the share of home ownership will be lower. But in the longer run it is not at all clear that a lower rate of home ownership represents a big loss to society.’

Earlier this week Prime Minister David Cameron announced plans for the government to underwrite part of home loans to first-time buyers in an attempt to make home ownership more affordable.

12 comments so far. Why not have your say?

Paul Scott

Nov 23, 2011 at 08:14

It's probably a good thing actually, as we need a more flexible labour market.

This is also what most people on the Continent do - i.e. rent during the first half of their career, then buy a house in their 40s to live & eventually retire in.

We have a weird obsession with property as an investment in the UK, when we need to get back to thinking about houses as places to live.

Better & more secure rights for Tenants who pay on time would be welcome though, as letting agents all too often treat tenants with disdain. More security of tenure is needed for good tenants.

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Anitaki

Nov 23, 2011 at 09:06

The rental sector will take off. We will become a 2-tier nation, those with property and those without.

One danger is those who are waiting to inherit as their only way onto the housing ladder. They are beginning to resent the possibility of their property inheritance being taken away as fees for their parents long term care.

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Man On The Inside

Nov 23, 2011 at 09:22

All things happen for a reason and perhaps the nation needed a wake-up call that the 'have today pay tomorrow' mentality of many was never going to be sustained. Most could put together the 5 or 10% needed to buy first homes but prefer instead to spend their money on alcohol or eating out. What does this say of the British mentality?

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Adam Grant

Nov 23, 2011 at 09:22

When did long term care become a necessity - the inheritors could always look after their own parents or even continue to live with them as used to happen.

In all honesty I really do feel sorry for anybody who has purchased a house in the last ten years and paid so much more than it is actually worth but I would suggest however, that many Brits are proud of the over inflated price they have paid for their home. It's an ego thing isn't it - a bit like "keeping up with the Jones's". Do you crazy people know how little a brick costs?

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Teri Downes

Nov 23, 2011 at 10:19

@man on the inside - biggest wake up call for me was when my daughter told me she was not going to buy a house because if you rent and you lose your job you get housing benefit, if you buy and the lose your job you get some assistance after 39 weeks by which time your lender will have repossessed your house. Her words were "What's the point".

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Steven McPherson

Nov 23, 2011 at 11:56

There are two obvious problems that have affected house prices in the UK: 1. The buy to let market which drives prices up. When you have a relatively small number of people owning a vast number of properties, this will create obvious problems for younger people looking to get on the ladder, hence why countries such as Sweden do not allow 'buy to let'. We should limit the number of properties an individual is allowed to own.

2. Parents buying flats for their children when they go off to University. Great examples are Edinburgh and Bristol, whereby entire districts of these cities are bought up by students (with their parents as guarantors on the mortgage) or by their parents. Every summer there is a new generation of kids with wealthy parents who buy up property and this dramatically increases the price for locals (not to mention the fact that these flats sit empty for lunch chunks of the year when said kids are on holiday from uni).

Put a stop to people buying dozens of properties to rent out, do something about the issue of students (funded by mummy and daddy) buying up entire neighbourhoods and we'll go a long way to fixing the problem of people with perfectly good jobs (nurses, teachers etc) not being able to afford to buy their own home.

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Andrew Baker

Nov 23, 2011 at 13:08

When one is young, renting can be best: it makes it easier to move around, and if one's job is lost, then housing benefit is far more generous than it is for those with a mortgage.

When one is old, renting is not so good: the places that may be rented on a pension are not that salubrious, and neither will the neighbours be either! (They will be the ones who prefer smoking and drinking to saving.)

So, buying in one's forties makes sense: one has time to save a worthwhile deposit beforehand, and a mortgage taken then should be paid off when retirement arrives, reducing outgoings and therefore making that pension go further as no rent has to paid from it.

Restrictions on how many houses one can own to rent or otherwise, and jealousy of those who have saved and want to help their children, will do nothing except please the incompetent and incapable, who certainly don't need or deserve any support. People in any job, good or otherwise, need to help themselves by saving over time if they want to eventually buy their own home: nobody will make them do it, nor stop them, which is right, as it is a matter for each individual to deal with themselves.

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Steven McPherson

Nov 23, 2011 at 16:40

Andrew, I agree wholeheartedly with much of what you say. A world in which people are disincentivised to save or help their children would certainly not be a better one. Keep in view that I'm not advocating knocking 'buying to let' on the head altogether, but maybe limit the number of 'buy to lets' that one person can have.

Other countries, that (on average) enjoy a significantly better standard of living than we do in the UK (and are deemed by most of the rest of the world to have a fairer / better system), have seen the dangers of allowing one person to buy hundreds of properties for the purpose of renting them out. When you have many thousands of individuals doing this (as we do in the UK) an inevitable side-effect is an inflated price for others who wish to buy their own home. That's why, for example, in Sweden, individuals are not allowed to buy residential property for the purpose of renting it out and there are controls in place to stop it from happening.

The incompetent and the incapable are another breed altogether, I'm interested in young professionals (nurses and teachers are two examples)being in a position to buy their own place (as my generation were able to do) should they so wish. Alas, the young team these days have little chance and the 'buy to let' phenomenon of the last 10 years is a big contributing factor to the conundrum.

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MPT

Nov 23, 2011 at 18:31

We have generations who believe in the old saying Safe as Houses.

We live on an Island with a growing population.

Houses get smaller and smaller to the point our food (Sheep & Cattle) get more land mass to enjoy than humans.

Take a look at the long term returns on residential property from the studies from Castle Trust that reveal the returns (without the leverage) have been consistently as good for lower risk, than equities. Not just the short term during the boom this long term with the exception of some short term equity bull runs that have generally corrected again. Risk adjusted is another factor that means the majority of what retail investors get look like poor value.

Unfortunately as an industry we are biased as people investing in property historically has not paid IFAs or Investment Houses. When the last time any provider or investment house was really showed you residential property correlation stats? Estate Agents have been OK and know however they have never needed to charge fees to purchasers of the assets and prove suitability.

If people do not have an ability to buy and we have a shortage of housing stock rent demand rises. Circle means that higher rents = higher property prices.

So unless we think the green belt will really given up,or we find a new way to increase the land mass, or have an population shrinking epidemic you need to have a likely view? As a medium to long term investment property and particularly residential will be “ Safe as bricks & mortar” Unless all the demographic studies are wrong of course.

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Andrew Baker

Nov 24, 2011 at 11:59

Steven, I support the initiatives that there are that allows workers in important areas such as doctors, nurses, teachers and the emergency services to buy their own home through such arrangements as shared ownership.

I am against restricting the freedom to invest in rental property: there are rules and laws that landlords need to abide by and that protects tenants, and the market place itself ensures that rents are competitive. Try to charge too much and you either won't get tenants or will find those you have go into arrears. Sadly local authority housing is not a complete answer because in many cases you are not going to be in a very nice area (and I grew up here saw the changes that started in the 60s), so we need private rental.

We need more housing stock, so should build more, with due regard to greenfield protection. Maybe if we could get people to learn trades allied to building instead of wanting a degree in administration, politics, arts and similar, we may actually get a workforce that can build these homes instead of one that wants to sit behind a desk and be paid substantial money for pushing paper around tapping garbage on a keyboard.

Maybe I'm too old, having memories of when things worked properly without needing an army to mess up dealing with a simple transaction and another one to tell you they didn't! And remembering too when apprenticeships taught people a good trade in which one was more secure in one's job than sitting on a chair in a service company offices producing nothing of value.

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Mets via mobile

Nov 26, 2011 at 17:15

Adam G please do me a favour and enlighten me...how much does a brick cost? I bought 2 years ago and have just remortgaged having made a 15% gain (on a interest only mortgage). Please do not feel the need to feel sorry for me.

It's not about keeping up with the Jones's, it is really just being in control of your own future and not wishing to pay off someone elses mortgage.

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C Cloy

Nov 30, 2011 at 17:48

We need urgently to burst the buy to let bubble but until a major party gets behind this it is not going to happe. I believe the National Union of Students should set up their own party if they want to help students to get on the housing ladder before age 40 or 50 as they would have the power to win many constituencies and redistribute the BTL wealth back to their generation.

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