THE housing market. What is that? For some, it’s a place to try and make money; for large house builders, it’s an economy. In its real and sustainable form, however, it’s a warm, secure home where families are created, laughter shared, pain and heartache talked through, and memories made.
I’m uncomfortable with anything other than the latter, as they aren’t real or sustainable. When push comes to shove, the fickle corporate bonuses of the big corporations, or the movement of a house price will mean nothing in comparison to that security of calling that place, your home.
The last time I covered the cost of buying a home in the UK was around six months ago which showed the UK’s affordability to buy a home based on price to disposable income which is an accurate way to look at it. Because house prices are high, that doesn’t mean they are unaffordable, because the income might be high to match that.
So, the lower the ratio the better. Belfast is 6.5 per cent and London is 16.3 per cent. Spare a thought for Shanghai at 48.1 per cent and Johannesburg at the other scale of 1.8 per cent.
The ‘market’ has slowed with transactions down around 20 per cent according to Zoopla. House prices will only really fall in synch to someone’s willingness or need to sell.
There is no need for interest rates to be used to curb inflation. The public aren’t creating it, so higher rates which are slowing the housing market for the normal buyer should return to normal if central banks choose to see the sense.
With higher interest rates, buyers are finding it difficult to see through the fog, which creates ‘worry’ and paralyses decision making. ‘Worry’ is better described as negative imagination. And so, it’s inevitable to see that when the imagination isn’t being used creatively, house buyers develop a ‘wait and see’ response which then creates stagnation of the housing market.
What hasn’t helped is lenders choosing to cut their availability for products for those buyers with low deposits. It has been a tight market for them.
This couples with the double whammy and sledgehammer that powders a nut, which is affordability. When interest rates were 1.3 per cent a year ago, the resulting monthly payment allowed borrowers to take out borrowing of £298,000. Now that interest rates are in excess of five per cent, the affordability tests push borrowing ability down to £176,000.
First time buyers are key to any ‘housing ladder’ as I’ve said in this column for 25 years. Without them, you don’t try and climb that ladder to fix the guttering.
The Skipton Building society brought out a 100 per cent mortgage but a key part of that lending criteria is that the borrower has to prove they have a good 12-month record of paying rent. So those children living at home saving for a deposit won’t qualify.
There is one other lender offering a 100 per cent mortgage, and that’s the Tipton with a 6.29 per cent rate.
In 2021, Rishi Sunak created a mortgage guarantee scheme which didn’t really work. It has been talked about extending this for a further year as it is due to come to an end soon. This allowed first time buyers to purchase their first property with just a five per cent deposit. The guarantee is useful for the banks but needs to be spiced up to encourage banks to create more available products, but, in the end, it may be futile because of the affordability test.
:: Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you would like mortgage advice call mortgage director Pat Greene on 028 6863 2692 or email pgreene@wwfp.net
