According to the Halifax house price survey, the standardised average price of domestic
property in the UK in mid 2009 was £156,944 a fall of 15% in 12 months. Yet, in
spite of the current problems, house prices have more than doubled (up 107%) in
the last ten years.
National figures again mask wide regional variations.
In Greater London, for example, the average price in mid 2009 was £237,250, which
compares with £118,418 in Yorkshire and the Humber and under £130,000 in the North,
North West, Wales and Scotland.
All regions experienced double-digit price falls in the 12 months to June 2009 but
the declines were especially marked in East Anglia (23%), Wales (19.5%) and Greater
London and the North West (both 17.6%).
Table 14.2 Regional Housing Markets
Widespread falls in house prices - improvement in affordability
The data in Table 14.2 have changed substantially in the last two years. Whilst
wide variations still exist between in house prices, all parts of the country have
recorded price falls in the last 12 months. As important is the fact that the numbers
in the last two columns (Average Advance and Advance:Income Ratio) are also much
lower, reflecting the tighter credit conditions as much as the lower house prices.
Where advances in excess of 80% were common in 2007, the average has slipped to
74% and, with it, the Advance/Income ratio.
This clearly illustrates the marked improvements that have occurred in ‘affordability’.
In real terms (the mix of house prices, incomes and interest rates), houses are
at their ‘cheapest’ for seven years.
South East sees highest prices and mortgages advances
The extent to which London and the South East are quite different from the rest
of the country is apparent from Table 14.2. Not only are house prices between 30%
and 50% above the national average but also the size of mortgage advances is also
the highest in the country. In Greater London, the average advance in Q2 2009 was
£158,250 (3.1 times income) and in the South East, £130,000 (2.99 times income).
This is the ratio for all borrowers, but for first-time borrowers the earnings multiple
is much higher.
This indicates that although incomes in the London and the South East are higher
than elsewhere, house prices, proportionately, are even higher and people in these
regions have to take on a larger debt relative to income.
This is an especially important issue for those on national salary scales, such
as many parts of the public sector. In London and the South East, it is very difficult
for nurses, teachers and policemen to compete in the housing market. Although national
scales often have a London Allowance added, this does not compensate for the higher
housing costs and in this part of the country, the social and public services are
often under-staffed.
Borrowers vulnerable to rising interest rises
The increase in the average size of mortgages across the country, which rose faster
than incomes (the loan to value relationship), exposed the borrowers’ vulnerability
to rising interest rises. When the Bank Rate increased in 2007, the housing market
stalled and then went into reverse, the first signal that the economy was heading
for a sharp downturn.
The consumer debt burden (of which mortgages account for the dominant share) could
act as a drag on household activity well beyond the recession. In periods of double-digit
inflation, matching pay rises eased the repayment pressures, but with incomes currently
rising by less than 3%, the debt will be a burden for longer. Unwinding the debt
overhang will be a constraint on the personal sector in general and the housing
market in particular.
