How to understand the housing crisis

The UK is in the grip of a housing crisis that is causing misery for millions, and the crisis looks set to intensify. Homeownership rates are collapsing, leaving many reluctantly paying rent to landlords for years, while others despair of ever buying a home.

What has triggered the crisis and is there a solution?

House prices soar

housing prices soar

Property prices have soared since the credit crunch, driven higher by the Bank of England's decision to slash interest rates to an all-time low of just 0.5% in March 2009.

This has made mortgages much cheaper, allowing people to borrow more and chase prices upwards.

Buy-to-let “amateur landlords” and overseas property investors have also driven demand for the limited supply of UK housing, as has the rapidly rising UK population and shortage of new homes.

Prices continue to surge despite Brexit, with the average UK home leaping 8.3% in the year to July 2016 to £217,000, according to the Office for National Statistics.

That is a rise of £17,000 in just one year, making it hard for would-be buyers to keep up.

The Bank of England's decision to cut interest rates to just 0.25% in August could push prices even higher.

Read more: How will Brexit affect my money?

 

Affordability worsens

afforability worsens

The average UK house price now costs a hefty 6.1 times average earnings. Property would need to fall 40% to bring this ratio back to the pre-2000 average of 3.5 times earnings, according to Fathom Consulting.

At the same time home ownership has fallen to the lowest level in 30 years, down from a peak of 71% in April 2003 to just 64% in February 2016, according to the Resolution Foundation.

Most first-time buyers can now only get on the property ladder with the help of the Bank of Mum & Dad. Others must wait until their late 30s or 40s, with saving a deposit the biggest challenge.

Read more: Rent or buy, which makes sense for you?

 

Rents

housing crisis explained

As fewer can afford to buy, demand for rented housing has also climbed.

So-called "Generation Rent" is locked out of ownership but unable to qualify for limited social housing.

The average UK rent in August 2016 was £960, according to Countrywide, although costs vary greatly depending on the region, from £697 in the North to £1,299 in Greater London.

Almost half of UK renters are now aged over 46, according to lettings agent Your Move. This could cause long-term problems, as many will struggle to afford rents after their income drops in retirement whereas homeowners should have paid off their mortgages. The subsequent housing benefit bill could place a heavy burden on the welfare state.

Another concern is that too many families are stuck in accommodation paying high rents with little security of tenure.

 

Not enough new homes

understand the housing crisis

The government claims to have helped more than 300,000 people into homeownership since 2010, through initiatives such as shared ownership schemes and Help to Buy.

However, insufficient properties are being built. Annual housing completions rose slightly to 139,030 in the year to June 2016, barely half the 300,000 the House of Lords says the UK needs every year to keep up with the growing population.

New Prime Minister Theresa May has promised to plug the housing deficit but there is a long way to go.

Some see a house price crash as the only solution to inflated prices, but that would cause as many problems as it solves.

 

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