Amid a growing air of concern about the housing market, even in the mainstream press, one headline this week stuck out like a sore thumb. “House prices to soar by 40%!” The newspaper reports were based on a National Housing Federation study, which stated that the average house price will hit £302,400 – it is currently £207,000 – by 2012. According to the NHF, this will be the result of a shortage of properties causing a “housing crisis”, as chief executive David Orr puts it. The NHF represents England’s 1,300 housing associations and describes itself as the “voice of affordable housing”, so it’s not exactly a neutral party – but is its prediction realistic?
Firstly, it’s debatable whether there is a housing shortage at all. The Empty Homes Agency reckons there are around 850,000 empty properties in England alone. And if there was a genuine shortage of physical supply, then rental prices would have kept pace with house-price gains. But this hasn’t been the case. In fact, as more and more amateur landlords have dived into the property market, competition has kept rental yields down. According to broker Landlord Mortgages, yields fell to 5.42% in the second quarter of 2007, down from 5.82%. With interest rates set to rise even further, it can’t be long before landlords decide to shift their money into more lucrative, less hassle-inducing bank accounts, unleashing a flood of starter properties onto the market.
The reality is that – just as in the US – the house-price boom has been fuelled by lax lending, the era of which is drawing to a close. The Council of Mortgage Lenders also reported this week that home repossessions are rising rapidly as interest rates bite – 14,000 homes were repossessed in the first half of 2007, up 30% on the same period last year. Even the NHF report accepts that house-price growth will turn negative in many parts of the UK next year. Its predicted recovery from 2009 onwards is partly founded on a return to “friendly borrowing conditions”. But as more and more people lose their homes, we suspect that “friendly” lenders will be much harder to come by in the years ahead.