Burning Down The House

I'm not sure exactly when it started, this British obsession with owning your own home.

I certainly remember Maggie thatcher extolling the virtues of being a homeowner. So much so that her government encouraged as many people as possible to buy their own council houses - mostly by offering them a substantial discount against market rates.

Forty years on and we have ourselves a housing crisis in the UK. Supply has fallen considerably below demand.

It has been recognized by successive governments for some time that not enough new builds are being commissioned every year to cater to be ever growing population.

The social housing that was practically given away in the 1980s and 1990's has not been replaced and rampant inflation of house prices has made it nearly impossible for the younger generation to get a foothold in the property market.

Many are caught in the "rent trap."

It goes something like this. In order to get a mortgage you need a substantial deposit. Unless you are lucky enough to be able to rely on the bank of Mum and Dad, this means some serious saving.

Yet rents are extremely high. You see the problem?

How can I save for deposit when I am paying so much in rent?

How can I stop paying rent when I can't get a mortgage?

We are of the stage where a whole generation have resigned themselves to never being in a position to own their own home.

So where did it all go wrong, this conservative induced ideal of a successful society (later whole heatedly embraced by "New labour") being based around owning your own property?

As usual, we don't have to look too far.

The answer is greed.

Although the idea was that people who lived in their homes would be the owners, in many cases that is not how things panned out.

Investors, always looking for a belter return, began to notice the high returns that those who owned property were getting.

House prices were soaring at a time when interest rates were at an all time low. Whilst low interest rates are good news for borrowers, the opposite is true for savers and investors.

Our ever resourceful bankers always quick to spot an opportunity, decided to start offering more mortgages to existing home owners so they could buy to-let.

These special mortgages are designed for those that can muster a deposit to use the rent they get from the property to pay their mortgage.

As demand is outstripping supply, house prices are pretty much guaranteed to keep on increasing making sure all the investors happy whilst ensuring the dream of home ownership for others is ever more unlikely.

You can see how this becomes a downward spiral.

Prices keep going up so only the wealthy can afford a deposit, this means a greater percentage of properties are bought as buy to-let.

The shortage of affordable housing means private landlords can virtually set their own rents meaning ordinary folk are unable to save for a deposit - and on it goes.

We only have to look back over the last 30 years to see the impact this has had.

The average house price in the UK in 1995 was ￡51,000,

The average salary ￡16,500. So you could buy a house for about 3 times your salary.

A 30% deposit would be about ￡17,000.

Plus rents were much lower so within around 3-5 years most working couples could save for a deposit (depending on how aggressively they saved).

Fast forward to 2022 and the average house price is ￡281,000. The average salary only ￡31,000.

Rents are extremely high making saving almost impossible and your potential house is now nine times your annual salary.

That's in the country as a whole. As for London!

Of course it has always been more expensive to own a property in the capital.

Back in 1995 the average property price in London was around ￡91,000.

The average London salary back then was approximately ￡19,000.

So we had a ratio of just under 5 times annual salary to buy your property.

What about today? The latest figures we have are from 2022 and the multiple of salary for the average London property is over 13 times!

With an average salary of ￡39,000 this makes the average property price over ￡500,000.

If a 30% deposit is required buyers are looking to find around ￡170,000!

When they are already paying extremely high rents, this is just out of the question for most.

So what is the answer?

The Government is putting all their eggs in the build more properties basket.

But this doesn't help if these are just being bought by more and more investors so they can rent them out at very high rents to cover their mortgages and increase their portfolio.

Perhaps it is time to rethink how we look at property.

Should it be a tool for investment or a basic human right that everyone needs a decent place to live?

As with any major decision, there are consequences.

What seemed like a good idea at the time - let's all own our own house - is now creating the kind of conditions outlined above.

More building will help, but not unless we stop the wealthy snapping up these properties and keeping those rents extremely high!