What goes up must come down?

Three hundred years ago, Sir Isaac Newton famously proved that what goes up must come down. Unfortunately for first-time buyers, house prices have never shown much regard to the law of gravity. Over the last three years the value of the average home has surged by 50 per cent despite repeated “expert” warnings that prices couldn’t possibly go any higher.

Virtually every week for the last two years, I have received e-mails from various economists saying that accelerating house price inflation was “unsustainable” yet prices have continued their relentless march higher.

Anyone who looks at a graph of house prices over the last 50 years will see that recent growth has been exponential. The graph looks like the heartbeat of someone on a life support machine who has suddenly been injected with a heavy dose of adrenalin. And just when we thought prices couldn’t go any higher, the news came this week that double-digit price growth has returned.

In my opinion, there are three main factors continuing to drive prices higher when almost everyone agrees that housing is already excessively expensive.

1. IMMIGRATION

There continues to be a net migration of people to the UK – at the upper and lower end of the social-economic spectrum – and this is supporting demand for property. At the same time the supply of propoerty coming on to the market is not keeping up so prices move higher.

2. EQUITY RELEASE AND BONUSES

The wealth stored up in the properties of people who have benefited from the housing boom is being released (mainly by parents) to help the younger generation to buy. Throw in three years of very handsome bonuses in the City of London and beyond and you can understand where buyers are finding the money to finance large deposits.

3. RELAXED LENDING CRITERIA

Finally, lenders are also relaxing their lending criteria so buyers can afford to step on, or trade up, the property ladder. Just today Bristol & West and the Bank of Ireland both announced that they are increasing the amount they are prepared to lend.

WHY ARE BORROWERS OVERSTRETCHING?

We know why the banks are so keen to offer extra cash – it makes them money. But why are borrowers so ready to throw caution to the wind? Probably because economic conditions have been so benign over the last decade or so that many people either can’t remember or have never experienced tough economic conditions like double digit interest rates, high unemployment or falling house prices.

THE FUTURE?

Anyone considering a loan should think twice before overstretching themselves. Every single economic bubble in history has always, eventually burst. But that does not mean I think house prices are suddenly about to fall. I believe they will continue to rise until economic conditions markedly deteriorate or the three factors I have outlined above change. The prevailing political, economic and social conditions do not suggest that this will happen any time soon. Expect further headlines of rising house prices.

Think my analysis is wrong? Or do you agree? Leave your comments below...

Comments

[Raj S]

The bigger the boom the bigger the bust.

[AJ]

I got my fingers burn't when I bought a property in the late 80's when interest rates went from around 8% to 15% and then the consequent collapse in property prices. Although the market conditions are very different now but the trigger point could be very different too.

Your three main factors contributing to rising house prices are quite valid. I would like to add another two:

1. The buy to let market has grown rapidly in the past 10 years resulting in additional demand for property with the supply not keeping pace.

2. The multitude of makeover and investing in property programs on TV has hypnotised the british public in believing that investing in property, and making money, is so easy. The reality check can't be very far away.

[chris curran]

I agree with these comments. However I would like to add that other factors are a) a chancellor that needed there to be a consumer boom to fund his spending plans and he therefore passively joined the hype and endebted consumers have kept the economy afloat and b) personal greed, we want all of the good life now and that if we don't scramble we will be left out in the cold. Its a rather undignified collusion of interests.

[Charles Garegnani]

I am a typical first time buyer in my early 30s and believe that property prices will eventually go down.

I am prepared to accept the difficulties in attempting to control erratic housing cycles. What I do worry about is the increase in borrowing. The majority of first time buyers are now taking the plunge overlooking the implications of taking on very large mortgages.

The media does not seem to do enough to expose the reality of the problem although I was pleased to see last week's program "Tonight with Trevor McDonald", exposing some of the problems.

We do not need a crash, we need a correction and education about knowing when bying a house is a sound investment. My advice is that it is a time to make savings rather than incurring debts – do the maths and assess the quality of the investment!

[Jim Harris]

The first time buyers are not only the young. Many ex service personnel who have had to serve overseas and live in rented accommodation are also experiencing difficulty getting into the market. This is usually at a time when they are also looking for new employment.

The help for them from the MOD is woefully inadequate as the allowances and incentives on offer have not matched the rising market.

All this comes at the same time the Defence Housing Estates are selling off housing and not maintaining their current stock. Bubble about to burst? I hope so!

[Rob Needham]

I agree with all the above comments - I was lucky, a 1st time buyer end '94 when prices were flat. Now 12 years later I am having difficulty buying my next house as prices have leapt higher than my wage rises in the south where I live.
If I was to try and buy my own home now, I could not afford it hence we are staying put and and adding smaller priced extension/conservatory to this house to give us extra floor space.

[Patrick O'Donohoe]

The tax changes to share dividends, the so-called mis-selling of whith- profits investments,which was politically exploited, and the idea pedalled that all investments must always increase all the time and be risk free, plus the Lords judgement on Euitable Life, all contributed to the demise of the pension industry and people are now risking their future pensions in the property market, and plunging into "Buy TO LET" and second homes. Of course nothing is risk free!

[David Kyle]

Hi Andrew,

I certainly agree with your assessment of the current spiral of house prices - I believe however that there are a number of extra factors colluding to make house buying an extremely expensive process. I think that lenders "loaning" house purchasers and first time buyers irresponsible amounts of money is going to have signifcant ramifications in the future. Yorkshire and Manchester have started to experience negative house price growth for the first time in recent years over the last month and if this is a trend that is going to continue, then the massive mortgages that people are taking out are going to act like a noose round round their necks. If lending levels were of a more responsible nature, back to levels seen 10 years ago and not to the levels offered by profit seeking lenders then this would act as a dampener to these eye wateringly large mortgages. I know the banks are trying to make as much money as possible, but with repossessions increasing I think it is time for the Financial Services Authority to seriously challenge lenders lending policy. Many lenders consider themselves to be responsible lenders but I believe the truth if far from that. When you couple this with slick estate agents who are talking property prices up on a daily basis with no solid economic drivers behind it then the purchaser often gets sucked into the dream. The reality is that the mortgage has to be paid off and it is the massive committments that people are undertaking that I believe is going to have adverse social consequences.

[David Fisher]

There is a need to replace properties that go out of use. in the mid 1980's thif figure was in the region of 300,000. you have only to look at the rate of build th see replacement was never up to this and since the loss of council houses to rent, the situation has got worse.

There has also been an increase in single person and couple households which has changed the demand at the low end where there is less profit for construction. Larger houses are more attractive to builders and for the local environment they often create in the Authority area so permissions are more desirable.

The house builders federation is not interested in suplying the needs of the market, as increased supply would slow and depress sales.

The market is open to the highest bidder, I believe the increased in income differential has affected the sales as seller hopes to find a buyer who can 'afford' the asking price and agents and vendor have an interest in getting the most out of a sale.

Pressure on wages especially at the bottom end has created huge difficulties for first time buyers in a market place that tries to attract the wealthy.

It is my hope that one day the market will respond to the need across the range of housing demand so that there is a proper mix of accommodation available to suit each locality.

Another problem is travelling. Transport is necessary because things are in the wrong place. There is excessive commuting because housing is no longer associated with work places. We know there will be choice but restrictions on business development often cause dense workplace localities creating congestion.

[Alan Gudgin]

Fundamentally the price of anything is the result of an interaction between supply and demand. Within the housing market there are literally hundreds of variables that influence both of these features and at any one time the equilibrium price can be influenced by changes within each. If prices overall are rising then demand must exceed supply....but this can be caused by either a relative restriction in supply ( planning regulations,land shortages,tax policies etc etc ) or relative increase in demand (demographic changes, interest rates, tax policies,wage rates, expectations of future prices etc etc) The lists are endless and are constantly changing. An explanation for the last years housing market is out of date as soon as it is presented. But it all makes interesting reading especially as we are all part of this market.

[G Page]

Relatively few people paying silly prices to secure property can account for double digit growth. The sinister reality behind that is that exponentially more people are being locked out of that market altogether. When people choose or are forced to stop overstretching their finances; when the banks get tougher on credit (taking our money in ever more imaginative ways); and when interest rates rise, that market will adjust. As the writer says, every economic bubble always bursts. The writer's indicators explain current movement but will not sustain an ever inflating property market.

[Keith Crocker]

Other factors affecting availability of housing stock include the fact that people are living longer and staying in their property longer than previous decades.
Also I believe that the number of people per household has fallen considerably in last 50 years. This social change means more housing is required for the same number of people.
The rapid rise in prices will only be eased by increased supply. (especially at lower end of market). Increased political pressure is required, nationaly and locally to achieve this growth in supply.

[Steve Clarke]

Is more than co-incidence that with onset of self vaildated mortgage applications that house prices rise unchecked?
Also given that there is no barrier to entry for estate agents interms of qualifications or working practices, they are more than happy to soak up all the cash housebuyers can throw at them.
Everyone is happy (except the buyers possibly. But this credit fuelled house buying/building boom has all the hallmarks of a bubble whether it be tulip bulbs in the 1600's, "South Sea" in the 1700's or the internet in 2000,at the end of the day borrowed has to be paid back. Sorry to burst the bubble.

[Alexandra R. Hardie]

Certainly immigration has pushed up house prices. Immigrants need housing, which adds to demand for housing, whereas supply of housing can only increase slowly.(The number of new houses built each year is very small compared to the stock of existing houses) If the Government is not prepared to restrict immigration, then it should at least require that full Council Tax is imposed on all houses. Owners, not tenants, should be liable to pay the Council Tax in all cases. This would encourage all house owners either to use their houses, or to sell them. There might well be an extra Council Tax charge on all houses not occupied by the owner himself/herself. Alexandra Hardie

[Bob]

I think you need to look further than just the propery market. The stock market collapse 3 years ago, pension shocks, endowment scandel, low interest rates, etc, have detered a lot of people from alternative forms of investment. They either consider the risks to great or the returns too low. Property has consequently attracted a lot of 'hot' money into seemingly 'safe' easy investment. Those that have borrowed to jump on the band wagon will face the consequences when the economic cycle changes and unemployment rises, as has started. Too many people are putting all their eggs into property and ignoring other forms of investment. Reality will return one day soon as it always does.

[gavin]

I'm not sure you are quite right about tripling of prices everywhere. The southeast particularly for larger houses have not suffered the same price increases. I had a house in maidenhead over the same period it increased by about 90%. In the last 4 years it hasnt increased at all. I sold at the beginning of the year.

[ian baker]

any investment "bubble" is a snap shot in time; I bought a property in 1988 and sold it in 1995 for a 10% loss, amazing as that seems now; the endless headlines and data masks a false figure obscured by a massive "property'industry PR, and new build incentives from developers that mean in reality new build flats are actually sold 10% (or more) less than the headline price, and extreme increases in swanky central London hot spots fuelled by investment Bankers bonuses that inflate the average figure; a reality check is coming...just wait for a few interest rate rises until that kicks in.

[C Pipe-Wolferstan]

Your analysis is spot on.
Immigration adds to the pressure on housing, however I do not agree with Alexandra Hardie on Council Tax, which is a tax on having somewhere to live. It should be abolished, not increased, and replaced by a tax based on ability to pay. Council tax on "empty" homes has already been increased and we already have a tax on second homes. It's called Stamp Duty - trebled or quadrupled since 1997 for many homes .

[J Taylor]

If the housing market was driven solely by supply and demand you would expect to see cyclical rising and falling of prices. Thia has not happened. The house price increases since the mid-1980's are unprecedented. The answer is much more likely to be an expansion in the monetary supply. Latest figures show money supply growing at 14% per annum. There will be no house price crash as long as money supply is growing at that rate. I expect to see increasing money supply, increasing house prices and rampant inflation ruining this country at the behest of the central bankers.

[Stephen]

The change in the mortgage market has also contributed to the problems we now have.

Fifteen years ago the mortgage you could borrow was about three and a half times your salary and that was it.

Now you seem to be able to get upto 7 times your salary.

The introduction of interest free mortgages also enables individuals to borrow larger sums of money and it appears not everyone has finance in place to pay of the loan at the end of the term.

Demand continues to exceed supply so the trend is likely to continue until as long as lenders continue to increase lending capacity and introduce new products on to the market.

[IAIN RODGERS]

I think another factor is that there have been some significant reductions in other prices, with the result that mortgage payments have become more affordable for many people. Things such as furniture, cars, electrical and electronic equipment are very much cheaper on a like for like basis.
I can remember when a T.V. or a fridge was a luxury. Now you can buy a TV in a supermarket for less than the price of a normal weeks shopping.

[BB]

House price growth is due to a little known economic theory about supply and demand. When supply exceeds demand prices fall, when demand exceeds supply prices go up. Planning regulations have ensured we haven't built enough housing for decades so prices have continued to rise.

House prices have grown faster than incomes as purchasers find ever more ways to finance them. This growth however is not exponential; it depends how you plot the graph. It should have a logarithmic scale to accomodate the compounding of growth. I thought journalists knew all about these things.

[Stephen Millar MRICS]

I am a 37 year old Chartered Surveyor who has been working in the property industry since 1992.

I have been involved in residential property development, management and investment as well as some element of mixed use and commercial development.

Unlike many in this business I have attained a hard won professional qualification. It takes about 6 years minimum to get through it start to finish.
Unfortuantely the business is marked by the unqualified and unregulated. This is part of the problem with this business and the whole market.

However, the single biggest problem outside of the dreadful planning system and the drag on supply this creates is the Banks. The supply of money on ever more dubious loans has created this price explosion. I know of this from personal experience. In 1992 when I was a young man the bank would hardly lend me the money to buy a posh car. I recently applied for a £140,000 loan for a second house (I hate commuting- waste of time and energy) and without asking how much I would require, was offered £500,000.
The banks are staffed by hard pressed lending officers who are TOLD to sell loans on targets - much like the car sales business tells dealers how many units they must push every year to hold their franchise.

The fault for all of this nonsense is the Banks. Full Stop! Their collective crass and irresponsible lending behaviour will leave the next generation with no money to spend on other retail items which will eventually leave us with empty shopping malls. It stands to reason that with a salary after tax of £1600 per month and a £1000 a month mortgage what's left for the Mall!

In summary, I am in the space of 15 years a millionaire, but, and this is a massive but, I have no real levels of disposable income.

Who wins with this set up
1. Estate Agents
2. The Inland Revenue (CGT, Inheritance Tax, Stamp Duty)
3. The Bankers (what a bunch of stupid...!)

[Sally Galsworthy]

I think the property boom has a long way to go but I do not believe the headline figure of 11%.The bottom end of the market is being inflated by first timers and investors.As more and more people hit their 50s they are following the lead of the baby boomer investors now hitting 60 who got into buy to let during the last decade.Unless we see a boom in shares the next generation middle aged will put their money in houses/flats.
I have knowledge of values in Bath,Central London and the Midlands. Bottom end of Central London no huge increases.Bottom end in Bath steady increase just about keeping up with savings rates. Middle bracket 250-500K moving but realistic prices. Agents through their PR want to keep talking the market up but if you talk to them privately they admit times are "tough".
The government wants the interest rate to rise again so encourages the headlines.Once again we are being manipulated. Wake up people.

[Marek]

Property prices will keep going up at a healthy pace. Good luck to owners especially if they have two or three houses. I would advise everyone to jump on the bandwagon because a successful investment is one to cherish.

The property market reflects confidence in the economy and this becomes a virtuous circle. In due course the government will legislate to release land in docklands and the Thames Gateway. But that will simply add to the momentum as the farsighted British use that opportunity to increase their portfolios.

[Ken Rowley]

The Government is to blame for this bubble that will surely burst. I am 62 and have no mortgage but it is the young I feel for. What chance have they of getting a foot on the property ladder? The moment Gordon Brown gave the Bank Of England control of interest rates things began to change. The banks switched things around to suit themselves. We were once a nation of savers, but no more. It is impossible to get a big enough return on savings to keep up with inflation, which by the way is well over 10% per annum and not the 2% they keep telling us it is.What is the point of having an inflation rate if it does not include the biggest most expensive item you will ever purchase in your life i.e. the home you live in. They tell us that house price rises are good for the economy. Whose economy? Certainly not the young couples who want to get married and start a family. There is absolutely nothing 'social' about this so called socialist government. A true socialist government would invest in social housing. A true socialist government would not encourage the young to binge drink, probably spending their hard earned money on booze because it is pointless saving it because it won't keep pace with 'true' inflation. And a socialist government would not encourage it's citizens to gamble on the internet. When history judges this government, as it surely will, it will be looked upon rather like the Russians now view the Stalin years. Remember 'Things Can Only Get Better'? Well don't bet on it!

[David Alan Roden]

The overall impression of your writings and those of the commentators gives me terrible memories of the property crash of 1988. I bought at just the wrong time and lost over 20% of the value of my home, plus of course the payments for the vastly increased mortgage due to interest rate hikes from 6-15%, and found it impossible to move again until 1996, by which time 125% mortgages had become common. In the end I regained all my losses and made a profit when I sold the last property in 2002 and moved to Denmark.

Between then and 1988 was not a particularly fun time with regards to housing for me.

I hope that similar circumstances such as the disastrous and downright stupid attempt by the then chancellor Nigel Lawson to stay within ERM limits (part of an early attempt to join the Euro) do not occur.

I feel for those who in such an occurrence will inevitably loose their shirt, and all the desperation and despair that follows. Been there done that, hope never to experience it again.

Hopefully there will be an orderly deflation.

Finally, I would like to add another set of people to the list who profit by rising house markets - those that sell up and emigrate!

Good luck to you all – you’ll need it.

[Preshit Mulay]

For a first time buyer like methe market is foolishly expensive. I have to be daft to buy into this market. Not that I cannot afford, but because housing market is not like stock market. Price of a house is subject to personal perception. It is not money in the bank. People think that they will buy and sell it off or rent it out. This argument doesnot seem valid as of today. Maybe 10 years ago this was true.
Now the govt want to impose green tax, the prices of petrol will rise, cost of travelling by road and air will rise. How many second home owners will travel more often from Midlands to Cornwall and fuel the further price increase there. Mortgage equity withdrawl is also on the rise. How long can peoples' borrowing fuel the economy? What will happen if the economy goesinto recession? Isnt house buying a herd mentality. No matter what people say I am a property bear till there is a correction. Gordon BROWN thinks he has made UK economy better. This could very well be true. But remove the house price boom and the picture is not as rosy.

[A. Reed]

Whilst much sympathy is understandably expressed for the fist time buyer, unable to "get on to the ladder". It is worth remembering that, whilst homeowners may have made a tidy sum in equity; this does not make their next home more affordable. For example, a first home may have increased in value by say 10% over the last 2 years but so has every other home in the area. As a result a larger home has in fact become less affordable; unless a persons salary has also risen by at least 10% over 2 years. I feel that rather than being "on the ladder" we are more accurately "treading water". Should conditions change, we may find ourselves not waving but drowning.

[John Reekie]

I bought a flat in Glasgow when i was a student and have seen the price of that investment more than double over the last 5 to 6 years. Given the large profit for the small investment of a minimal deposit i can see why this is an attractive proposition.

I am also an engineer and when i look at my income of £28,000 for three years experience plus bonus, the house price in the South of England would overstretch me and even my girlfriend if we pulled our comparable incomes.

Therefore i think it is only a matter of time before business and people start to look for the further North areas where their wage, outgoing relationship goes back to a reasonable level offering good quality of life. After all the more staple professions of Engineering, Teaching etc. do not see the large London wage increases of other professions.

[A Gibson]

The post by Stephen Millar touches on what I believe is one of the main contributtions to the rising property prices. The vast number of affluent "baby boomers" are setting the prices through their purchases of larger main residences, second homes and buy-to-lets. This group have the better paid jobs, no student loans and previously benefited from MIRAS on their first purchase. The rising property market will be their financial security in old age.

In future, property will not crash but the capital growth will fall below wage growth as all the boomers retire and companies have to hire scarce young graduates at a premium. The boomers will have to sell their properties to fund health care or move to India (as there will be insufficient doctors and nurses who can afford to live in the UK).

I feel very sorry for the new graduates with their student loans, poor pension benefits and the prospect of very high house prices for the next 20 years.

I have been fortunate to benefit from rising property prices, but anyone with any sense must realise that all asset valuations have a ceiling.

[Chris Coles]

Not everyone agrees with the analysis that prices will continue to rise. The housing bubble in the USA is already predicted to collapse. See: www.itulip.com

[Edmund Burke]

The principal socio-economic force underlying the surge in house prices is unquestionably the feminist revolution. And before I get blown sky-high by a massive barrage of protests from women contributors to this thread, let me confess that I am a house-husband (recently retired) who swapped roles with his wife and stayed at home to bring up the kids.
But how many families nowadays have one partner - of either sex - staying at home to do the job of parenting? Very few. And that is the reason for the surge in house prices. As David Kyle says above, the market is open "to the highest bidder". True enough. One plus one equals two. So if the highest bidders are now two-income families, that determines the rocketing price of houses. As simple as that.

[Sylvain]

Iain Rodger is right; House price growth is due to the supply and demand theory. The price should go up until there are no buyers who want to pay more.

But currently, the demand is sustained because people can (or think they can) pay more.
Why?
Because the lenders (banks) help then to think they can afford the bill.
How?
- Before you could borrow 3 times you salary. Now you may get 5-7 times the amount
- The duration of mortgages went from 15 years to 20, 25 now 30 and soon 50 years to allow you to borrow more/ reduce your monthly payment
- Still cannot afford it? Why not take your mortgage with your friends then? That's the new trick from some lenders

No worries, as long as the lenders have ideas (e.g. Buy now, Pay later...) to make profit from you, they will lend you more than you need and the price of houses will keep going up.

[Firozali A.Mulla MBA PhD]

Not always has Newton come out with the correct laws. Sir There are flaws. The taxes always go up so do the price of property. Apple that was but a small fruit. With the innovation apple dots make no sense for comparison. The money matters most for it creates envy and murder nay not the sweet smell of apple it is. Rich go up, poor still fight for the crumbs and loo pathetically for the division to the creator they complain “Why me”. “Katrina victims have not come back home”. They washed out do not venture away back to know what hit them.
Lo for the money Isaac was wrong Sirs. I pray not bring the science of past but stay in future that is uncertain. Newton and Churchill, and Lincoln and Al Capon and Hitler Alexander not look at thee. You are a new person. Globalisation says some is good, death of economics say some. Where do I heed?

[diane binder]

I THINK THE BRITISH ARE NOT PASSIONATE ABOUT PROPERTY BUT OBSESSED! THAT'S ALL
THEY TALK ABOUT AND DUE TO THE QUALITY OF BRITISH HOUSES THEY ARE NOT WORTH HALF OF WHAT ONE PAYS FOR THEM. IT IS STILL "RIP OFF BRITIAN" AND I FIND THE ENGLISH QUITE GREEDY WHEN IT COMES TO MONEY MATTERS.

Diane Binder (expatriate)

[Rajdeep Sidhu]

As soon a younger participants in the market realise they are proppping up savagely disproportionate market, prices will fall.

Supply and demand is a big element, but so is liquidity. You can now put property into your SIPs pension, share with friends, extend tenure, get interest only, many income multiples, shared ownership with the government, key worker schemes, self validated mortgages, mortgages in anticipation of heavy bonuses - all schemes to help prop up the market and juice it as far as it will go.

Each step up will correspond to a step down - even with a supply/demand imbalance. Supply/demand alone, does not explain a market where my parents' home has gone up 420% in 10 years. Commentators that suggest this isn't a boom, need to check their vested interest at the door.

Changing rooms, A Place in the Sun, B&Q, Ikea, pensions - all symptoms of this mania. Most read articles on websites are dominated by any news on house prices and debt levels. It will end in tears for some. Baby boomers will sell up, unemployment will rise, interest rates will rise, immigrants will find somewhere more attractive to settle, taxes will rise, tennants will become scarce, buy-to-letters will sell, interest only mortgage payers will sell when they see no equity profit, people will not soak up the supply straight away, they will wait till prices bottom out. Yes it is a market, and we all know what happens to bubbles in markets don't we?

[Alison Sinclair]

I agree with the comments made. however, I think it is sad that so many people feel they need to overstretch their budget by owning a house. England is one of the only countries in the EU where "renting" is considered a dirty word. Buying a house where the mortgage is five times a salary is something I would never choose to do, due to the associated risks. It is something I think is overrated!

[Paul Fissenden]

Is this an announcement about something new in the market? No - its been hidden by the corporations for years. 135% mortgages are cash back mortgages! 50 year mortgages? The average life expectancy in Scotland was/is 57 for a male. Assuming that person starts work at 18 that leaves nearly 20 years left on the mortgage of a first time buy -if they could get on the ladder at 18. Who benefits? Banks and the government. Do you know about the coming of mortgage 'packagers'? The UK public have not seen anything yet about what the market will turn into.

[RobS]

Any inference that Abbey offering mortgages at 5x salary is an aid to people getting on the property ladder is somewhat mistaken, if the requirements of 25% and £50k income are correct. Assuming that £250k represents 75% of a house price, the property would be worth over £330k and the purchaser would have a deposit of approx £80k. Anyone 'struggling' to get on the property ladder while having a deposit of this size is simply looking in the wrong area or at the wrong size of property! Who on earth earns £50k, has £80k in the bank and considers themself a struggling first-time buyer?!

[Bernard Parke]

This will only make the price of a home even more unafordable, and those who take it on will be under a tremedous debt burden for the rest of their lives.
Such burdens put a tremedous strain on relationships; causeing the break up of marriages.
If avaliabilty of mortgages were restricted the flow of money would be restricted and so the price of housing would fall.
The start of this problem goes back to the days of the growth of building societies which was caused by the simple action of the banks closing on saturday mornings whilst the societies remained open.
Funds were withdrawn from the banks who became mere pay masters. The societies became awash with funds which in those days they could only lend on house purchases. This lend to the obscence rise in house prices which we see today.

[Andrew McNaught]

Having read the comments about the banks being to blame for over-lending, and mortgage amounts increasing to sky high levels, I would like to add that the proportions of people's disposable income has stayed the same.

Let me explain.

A £20k mtg 20 years ago was a dauting thought and a serious, and sometimes stretching, commitment as is £150k today.
We need to consider that wages have risen, and with the cost of "expensive" items such as tvs, sofas and hoovers etc, having become cheaper and more available, it gives the average couple with a £150k mortgage on an joint average salary the same disposable income as they would have had 20 years ago.
Therefore, house prices will continue to increase in proportion to this disposable income.

Are we now struggling because of the amount of personal debt that our society is in, compared to 20 years ago?

[Rahul Desai]

I've read through all these comments, and there is a common strain. An obvious tension and portent. Quite rightly, the market is tense, the signs omnious, the lessons known (from the 80s and other cyclical models.)

The question is, who knows which way this will swing? The wise can warn, but this is beyond anyone's experience. Like an old seaman in a tsunami. As a buyer
(in the midst of a 1st time purchase in Central London approaching exchange),
I genuinely have sleepless nights, but look at the factors that weigh both sides...

On the negative, prices are moving quicker than the eye can follow. The agents are obnoxious, a buyers negotiating position is poor, and sellers nervous,demanding and shifty. Its mad. Bad mad. tense mad. And warning bells screaming stop! It will not last!

On the other hand...
City Bonuses are bound to be high, Supply is restricted (for whatever factor), banks are throwing money at buyers, and prices have been forever increasing in Central London.People are buying. They are overbidding and flocking to London to buy. Because there is a belief, that its increasing, and a good investment - there is no sign of stopping, peopel are earning more, money supply increasing, economies doing well, not one visible sign of it stopping - or is there?

The fear? If I dont buy now, I might not be able to step into central london for many years. To say 10 years from now with possible regret, "10 years ago, I could've bought on High street Ken, but didnt- i never knew they would go up so much."

The risk? all my savings, and being stuck in a tiny apartment for 7-10 yeras (by when I have no doubt itll rise again) - in a great part of town.

The reward? To have made a property in the amongst the toughest markets in the world when it was affordable (if those prices continue to soar).

Does someone actually know for sure or even 75% for sure? Please do advise.

[AMARJIT SINGH CHANA]

We have to remember that a house is firstly a place to LIVE(keep a roof over our heads, that's what a home IS meant to be. People are led to believe that it now means something else)!

If one were to buy an average property in Mayfair for a few million pounds and it burnt down, it would still only cost you 70k-100k to build it from scratch. It would cost(on average)the same to build anywhere else in the UK. Mud is Mud and land value plays a vital role. House could cost 50k- the land 1.2million!

The land value and your postcode makes a very big difference and I can't believe that it's now costing the earth(literally) to pay extortionately ridiculous prices for bricks and mortar and the mud the house stands on! TOO MUCH feel good factor will make this country even more difficult to live in. The bubble 'will' burst..!

It's as though we're all led to believe that the lake has frozen over and it's safe to skate as long as we so wish(the lenders and govt. standing safely on the bankside(banks side?) ...but how long will the ice remain before it cracks/melts..?

[vincent ludovico]

What was needed was house price regulation. Many will never pay off those loans. House price rises need to be held down to give anyone a chance of getting a mortgage. Rising prices are only good for those seeking to make money. A big headache for everyone else.