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You can find the current article at its original source at http://www.theguardian.com/society/2015/sep/02/home-shortage-and-lending-rules-why-generation-rent-is-out-of-luck
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| Home shortage and lending rules: why Generation Rent is out of luck | Home shortage and lending rules: why Generation Rent is out of luck |
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| Tales from the frontline of Britain’s property market in one week alone: in Exeter, a letting agent demands £800 in fees before renting a mundane one-bed flat – and £360 just to change the name on a photocopied contract; in west London, an estate agency chain charges £1,500 to desperate buyers, as well as demanding thousands from the seller; in Leicester a hard-up couple are forced to pay £250 to a letting agent as a reservation fee before even applying for a property. | Tales from the frontline of Britain’s property market in one week alone: in Exeter, a letting agent demands £800 in fees before renting a mundane one-bed flat – and £360 just to change the name on a photocopied contract; in west London, an estate agency chain charges £1,500 to desperate buyers, as well as demanding thousands from the seller; in Leicester a hard-up couple are forced to pay £250 to a letting agent as a reservation fee before even applying for a property. |
| Related: Unaffordable country: where can you afford to buy a house? | Related: Unaffordable country: where can you afford to buy a house? |
| They are the human faces behind the headlines of average house prices hitting a record level of £200,000 nationally – more than £450,000 in London – and where seven potential buyers are chasing each property. How did we get here? It might shock young adults to know there was a period, not long ago, when house prices didn’t do much for years on end. Between 1950 and 1960 the price of a typical home barely changed (from about £1,800 to £2,000) and actually fell in relation to incomes. The postwar building boom saw housing completions rocket to 350,000 a year in the mid-1950s, when the population of the UK was 52 million. | They are the human faces behind the headlines of average house prices hitting a record level of £200,000 nationally – more than £450,000 in London – and where seven potential buyers are chasing each property. How did we get here? It might shock young adults to know there was a period, not long ago, when house prices didn’t do much for years on end. Between 1950 and 1960 the price of a typical home barely changed (from about £1,800 to £2,000) and actually fell in relation to incomes. The postwar building boom saw housing completions rocket to 350,000 a year in the mid-1950s, when the population of the UK was 52 million. |
| The hectic pace of construction suppressed house prices across the decade, in what now appears to have been the golden era of affordability – and which catapulted Britain from a nation of renters to buyers. But by 2013-14, the pace of building had slowed to a crawl – just 141,000 units, for a country with an extra 12 million inhabitants. | The hectic pace of construction suppressed house prices across the decade, in what now appears to have been the golden era of affordability – and which catapulted Britain from a nation of renters to buyers. But by 2013-14, the pace of building had slowed to a crawl – just 141,000 units, for a country with an extra 12 million inhabitants. |
| But Britain’s chronic shortage of homes is just one, albeit crucial, factor behind today’s affordability crisis. The other side of the equation is finance. The price of a house is largely a function of how much a lender is willing to lend against the property. | But Britain’s chronic shortage of homes is just one, albeit crucial, factor behind today’s affordability crisis. The other side of the equation is finance. The price of a house is largely a function of how much a lender is willing to lend against the property. |
| Until the end of the 1970s, mortgages were strictly controlled by a building society cartel which capped the amounts individuals could borrow. I grew up in a house in Romford, Essex, bought by my first-time buyer father for £2,400 in 1956, when the maximum he could borrow was 2.5 times his salary – with a point-blank refusal to take into account my mother’s income. | Until the end of the 1970s, mortgages were strictly controlled by a building society cartel which capped the amounts individuals could borrow. I grew up in a house in Romford, Essex, bought by my first-time buyer father for £2,400 in 1956, when the maximum he could borrow was 2.5 times his salary – with a point-blank refusal to take into account my mother’s income. |
| Such controls curbed the amount anyone could bid for a property. Contrast that with today, when first-time buyers on that same property in Romford will be offered up to five times their joint income. It explains why houses on that road of three-bed semis now fetch 10 times average income. An uncomfortable truth is that the breakthrough of more women into the labour market has resulted in a large part of their incomes being squandered in inflated mortgage repayments. | Such controls curbed the amount anyone could bid for a property. Contrast that with today, when first-time buyers on that same property in Romford will be offered up to five times their joint income. It explains why houses on that road of three-bed semis now fetch 10 times average income. An uncomfortable truth is that the breakthrough of more women into the labour market has resulted in a large part of their incomes being squandered in inflated mortgage repayments. |
| Today’s historically low interest rates add to the pressure cooker of prices. What matters to buyers is how much a mortgage costs to service each month: a £200,000 flat at a 3% interest costs around £950 for a repayment mortgage, significantly less than the cost of servicing a £100,000 flat at 10% interest rates. The colossal risk for today’s buyers is that interest rates return to anywhere near those prevailing in the past. | Today’s historically low interest rates add to the pressure cooker of prices. What matters to buyers is how much a mortgage costs to service each month: a £200,000 flat at a 3% interest costs around £950 for a repayment mortgage, significantly less than the cost of servicing a £100,000 flat at 10% interest rates. The colossal risk for today’s buyers is that interest rates return to anywhere near those prevailing in the past. |
| Related: They're property millionaires. Why can't their child get on the housing ladder? | |
| Neither should we underestimate the dramatic psychological change wrought on the public mind by decades of soaring prices. Embedded in the British psyche is a belief that nothing beats bricks and mortar as an investment, especially after the financial services industry hit self-destruct when it began mis-selling pensions on a vast scale. | Neither should we underestimate the dramatic psychological change wrought on the public mind by decades of soaring prices. Embedded in the British psyche is a belief that nothing beats bricks and mortar as an investment, especially after the financial services industry hit self-destruct when it began mis-selling pensions on a vast scale. |
| The easiest way for ordinary people to make life-changing amounts of money has been in buy to let. Landlords have hit the investment jackpot by earning returns of almost 1,400% since 1996, leaving the performance of shares, bonds and cash trailing in the wake of Britain’s property boom. | The easiest way for ordinary people to make life-changing amounts of money has been in buy to let. Landlords have hit the investment jackpot by earning returns of almost 1,400% since 1996, leaving the performance of shares, bonds and cash trailing in the wake of Britain’s property boom. |
| The new pension freedoms introduced in April by the chancellor, George Osborne, has seen buy to let surge again, pushing prices further out of the reach of Generation Rent. | The new pension freedoms introduced in April by the chancellor, George Osborne, has seen buy to let surge again, pushing prices further out of the reach of Generation Rent. |
| Critics argue that every government programme – help to buy, funding for lending, shared ownership, tax breaks for buy to let, and right to buy – will just inflate a new housing bubble if no new homes are forthcoming. | Critics argue that every government programme – help to buy, funding for lending, shared ownership, tax breaks for buy to let, and right to buy – will just inflate a new housing bubble if no new homes are forthcoming. |
| The Conservative government has promised to break the deadlock on the supply side of the equation with its starter homes initiative, making 200,000 more properties available by 2020. There is talk about new garden cities, pledges on better planning rules, and support for self-build. From 2017, buy to let will also look less attractive because of a new tax regime. | The Conservative government has promised to break the deadlock on the supply side of the equation with its starter homes initiative, making 200,000 more properties available by 2020. There is talk about new garden cities, pledges on better planning rules, and support for self-build. From 2017, buy to let will also look less attractive because of a new tax regime. |
| There are signs that the market is responding: developers say they are likely to increase their output to around 170,000 new homes a year by 2018. But this is still well short of the 240,000 units a year that by widespread agreement are needed to meet the country’s growing population. | There are signs that the market is responding: developers say they are likely to increase their output to around 170,000 new homes a year by 2018. But this is still well short of the 240,000 units a year that by widespread agreement are needed to meet the country’s growing population. |
| Britain’s housing crisis is not going away for a long time yet. | Britain’s housing crisis is not going away for a long time yet. |