King of the road
24 Sep 2015
By Andy Golding, CEO

It is not a surprise to anyone that house prices are rising.  The Halifax price index confirms just how much by recently announcing that prices have risen by 9% on average over the last year.  I know that some places such as central London can skew results but it is still a good indicator that the property market is seeing sustained demand.

Anyone who has tried to find a home in the last few months will know that whether they wish to rent or buy there is a lengthy queue, especially for the most desirable properties and locations. So on the supply side, there still remains a chronic shortage of properties coming onto the market.  According to the latest Royal Institute of Chartered Surveyors (RICS) survey, the stock of properties per surveyor hit an all- time low in July.  Housebuilders tell us that they are working flat out, and I am sure that they are, but we are still not building enough new housing to meet the needs of a growing population and changing lifestyles causing fragmentation of families and more people working away from home.  This will need political will as well as commercial opportunity.

But does that mean house prices are making houses less affordable?  Actually I would argue that statistics suggest that homes are still affordable compared to the highest points in economic cycles.  The Bank of England base rate has been at 0.5% since 2008 and although they will increase at some point, the rises will be small and are not expected before next year now.  In research recently undertaken by respected consultants Lazarus, the key determinants of affordability are all converging.  Mortgage interest rates have been falling since 2008 and find themselves at record lows.  Average mortgage payments are estimated to be at 18% of household income in 2015 versus 18.8.% last year despite house price inflation.  Combine this with strong household incomes, growing at their fastest rate since before the financial crash, and increasing levels of employment, the housing market looks to be more affordable than it has for some time.

Affordability is of course critical and as you would expect I would urge borrowers to think about rising interest rates. Whilst they have been low for many years now and whilst the rate rise can seems to be continually kicked down the road, at some point base rate will go up and the cost of borrowing with it.

For those looking to rent rather than buy, demand is keeping rents up and as mortgage rates fall there is very little difference between the average cost of renting and mortgage repayments.  Obviously this isn’t the same in central London as it is in the cities, towns and villages of Kent but it makes the contrast more of a choice than a necessity.  For first time buyers though, getting a deposit together might be the thing that means more people are choosing to rent even though mortgage costs are relatively low. Indicators suggest that the ongoing trend to choose renting rather than purchase will continue growing, as it has since at least 2000.  And as the number of renters increase, more of them are choosing not to buy rather than being forced to rent.  This really is a change and as I have said before, I like choice.