Property can be an emotive subject. But I didn’t realise quite how emotive until our last Roundtable meeting on the topic. I wasn’t there myself, but judging by the shouting and swearing coming from the room, it was somewhat rowdier than normal.
Of course, it’s no surprise that people get worked up about house prices. On the one hand, the decade-long property boom has left some homeowners and property investors sitting on paper fortunes and feeling very clever and pleased with themselves. On the other, there are the desperate would-be first-time buyers who find themselves locked out of the market, either unwilling or unable to borrow more than six times their annual salary for the privilege of being able to call the roof over their heads their own (even though it’s actually the bank’s).
But can it go on? Both sides believe they have good arguments to support their cases – but as regular readers will be aware, I’m with the bears on this one. I just don’t see how current prices can be sustained. The bulls talk about how supply in Britain can never keep up with demand. Yet developments of city-centre flats have sprung up like weeds across the UK, and there are more and more stories of these flats turning up in auction houses after being repossessed from amateur landlords. The Mail on Sunday pointed out this week that in the mid-1990s, fewer than 500 flats a year were built in inner Manchester. “That number is now nearer 5,000.” And Savills reckons that another 15,000 will be built over the next five years. Does inner-city Manchester really need that many new flats?
The reality is that house prices have been pushed up not by a lack of supply, but by an oversupply – of cheap money, that is. If you can borrow £50,000, you’ll buy a £50,000 house. If you can borrow £500,000, you buy a £500,000 house – and the more that people believe property is a “sure thing”, the more they’re willing to stretch themselves to buy. But now, as the credit crunch takes hold and it gets more expensive for banks to borrow money, lending criteria are being tightened up and mortgage costs are rising. The CEO of HBOS, Britain’s biggest mortgage lender, admitted as much earlier this week, when he warned that the bank is going to shift its focus from grabbing market share to making more money from its loans, after a “sharp reduction” in mortgage profitability.
You may disagree, in which case you’ll be interested to know where our experts reckon are the best places to buy if you’re still a bull. But even if you think that bears like myself are just doom-mongers, here’s a suggestion: don’t buy a new-build in Manchester.
Merryn Somerset Webb is away.