How much longer can the housing boom go on for?

House prices are rising at their fastest rate for two years, according to figures out today from Hometrack, a property website. Some may cheer at the news, but others, namely those who can only dream of owning their own home, will probably groan. I don't know about you, but I'm getting a bit worried about where it's all going to end.

According to new research from Abbey 17 million people can't get on the property ladder. Separate research from Halifax revealed that the average house price has increased 187% over the last 10 years and now costs £179,425.

Those who say prices can keep going upwards cite the housing shortage. The buy-to-let boom, immigration and the rising number of new family units (caused by divorce and separatation) are among factors fuelling demand. I understand that, but surely if prices keep climbing, we will reach a point where people just cannot to afford to buy?

We are already seeing mortgage lenders relax their criteria so that people can borrow more. Abbey has just announced it will lend first time buyers up to five times their salary. There is not necessarily anything wrong with this as long as the borrower can really affrod to service the debt and at five times income it is possible - I borrowed that for my first flat. My Dad acted as a guarantor so I could raise a large enough mortgage and I and got a lodger to help with the costs. But what happens when five, or even six times income, will not give people a large enough loan? Lenders can't keep relaxing criteria indefinitely.

Some people believe lenders have helped fuel the boom - if they hadn't changed their underwriting criteria, we would probably have reached the point when borrowing restrictions acted as a brake on house prices. But lenders argue that would have been an un-natural break. With interest rates and inflation significantly lower now, than when the original criteria of 3.5 times single income and 2.75 joint income were set, people can afford to borrow more.

The recent strength of the housing market seems to have taken most analysts by surprise. However, they point out that it is London that has confounded expectations and as such the national figures are somewhat distorted. Prices in the capital have risen 9.9% this year according to Hometrack, while those in the north are up just 0.4% and the east Midlands has seen increases of 0.5%.

On closer inspection therefore, maybe things aren't as worrying as they initially appear. With an interest rate rise expected next week, and a further one anticipated early next year, we could soon be hearing the screeching of brakes. But will we then be worrying about falling prices?

Aspiring first time buyers won't be worrying but those who have just bought and who put little or no deposit down, could well begin to panic.

I'm not sure what I think will happen to house prices going forward. Hopefully we are about to enter a period of low, single-digit growth, but as we are seeing with the London market this year, there are always likely to be areas which buck the trend.

If the rate of growth does slow, it is good news for those trying to get on the ladder because there is no need to buy before they can really afford. They can take their time to save, without having to worry that by the time they have saved a deposit for their ideal first pad, prices will have shot up beyond reach and left them back at square one. Even so, I don't envy them.

Comments

[Preshit Mulay]

I aggree! I just dont feel envious of people who own property anymore. I am quite happy renting and saving up, awaiting the next price drop, which not many people want but is definitely on cards some time soon. Eventually people will realise buying a house is not a safe investment as they think and maybe the market might stabilise. Till then it is stocks and shares for me.

[BS]

The housing market differs from the pure investment market (such as the stock market) because it is driven both by investors and people who actually want somewhere to live.

Rent returns do not increase with house prices so residential property yields have now fallen which may cause a decline in buy-to-let investors but with 17 million people waiting to buy for residential purposes there is no shortage of buyers to replace investors.

A house price crash does not seem likely unless residential buyers are intimidated out of the market or investors suddenly decide to offload property portfolios.

Unfortunately, without new legislation, we may see a return to the days when property ownership remains the preserve of the already well off whilst the majority rent.

[Newton]

So you are thinking of getting on the housing ladder? Just consider this, you buy at the top of the market now - but you are not buying - the house/flat belongs to the building society, so just think of it as rent. However YOU bear the responsibility for this debt. If the cost of buying plus all the other items like maintainence and insurance are dearer than renting, then you MUST rent, because house prices cannot keep rising.

[Ian Bakewell the Work From Home Tipster]

I live in Edmonton and the housing boom here is really a crisis. property value jumped 35 per cent or somesuch last year, and with a 99.9 per cent occupancy rate, finding a place to rent is near impossible. Rents themselves are rediculous to the point many are asking the goverment to step in and put a cap on them. I have many friends who work their $18 an hour 9-5, and are near homeless due to the jump in their rent.