Home Truths: Wider context for housing affordability
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This document discusses housing affordability in the UK. It summarizes that: 1) House prices have not seen a major correction and low housing turnover supports high prices. 2) Low mortgage rates have supported prices for existing owners but higher deposit requirements offset lower home prices. 3) There is pressure on the private rental market with rental growth limited outside of London. 4) Solutions to housing affordability issues need to come from local housing markets and their dynamics.
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Home Truths: Wider context for housing affordability
- 1. Wider context for housing affordability Home Truths Richard Donnell, Research Director, 16 May 2013 #hometruths
- 2. 2 © Hometrack 2013 Overview > Affordability debate starts with the price of private housing and the cost of accessing it > No major re-correction in house prices > Pressure on rental markets > Impact of government schemes to stimulate demand > Local solutions for local housing markets > Summary #hometruths
- 3. 3 © Hometrack 2013 Low turnover creates scarcity and supports house prices Source: Hometrack 0% 2% 4% 6% 8% 10% 12% 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Turnoverrateofprivatehousing%pa > Low churn creates scarcity and supports prices > Historically low turnover currently at just 4% – a move every 25 years > Exacerbated by cost of moving and low inflation > New housing completions well below household growth rates add to scarcity > 43% sales in 2012 were cash buyers or BTL investors #hometruths
- 4. 4 © Hometrack 2013 Low mortgage rates support pricing for existing owners Source: Hometrack - Note: Implied house price is what could be bought using 35% net income to meet mortgage repayments at prevailing LTV and average mortgage rate over time £0 £50,000 £100,000 £150,000 £200,000 £250,000 1976 1983 1991 1998 2006 2013 Actual house price UK Implied house price > Comparison of actual house prices against implied house price > Clear disconnect between actual and implied prices in late 1980s and mid 2000s. > Support from lower interest rates clear over 2008-date. > Implied prices very sensitive to changes in mortgage rates #hometruths
- 5. 5 © Hometrack 2013 Lower quartile price of a 2 bed home is lower … Source: Hometrack £0 £50,000 £100,000 £150,000 £200,000 £250,000 London SEast SWest East WMids EMids Y&H NWest NEast 2bedpropertylowerquartileprice Peak Current -2% -4% -10% -9% -10% -10% -14% -15% -18% #hometruths
- 6. 6 © Hometrack 2013 … but higher deposit requirements offset lower prices Source: Hometrack £0 £5,000 £10,000 £15,000 £20,000 £25,000 £30,000 £35,000 £40,000 £45,000 London SEast SWest East WMids EMids Y&H NWest NEast Averagedepositrequiredtobuy Peak Current #hometruths
- 7. 7 © Hometrack 2013 Pressure on private rental market Source: Hometrack £0 £200 £400 £600 £800 £1,000 £1,200 £1,400 £1,600 £1,800 £2,000 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 Rentpercalendarmonth(2bed) London South East Rest of GB > Two rental markets – one in London and rest of UK > Rental growth outside London has been limited averaging 1.5% pa > Rents doing well to rise given pressure on household incomes > Drivers of affordability more complex than buying due to impact of occupancy #hometruths
- 8. 8 © Hometrack 2013 Affordability – renting v buying £0 £50 £100 £150 £200 £250 £300 £350 £400 £450 EMids East London NEast NWest SEast SWest WMids Y&H'side Housingcosts£pw(2bed) Rent Buy 80% LTV @3.75% Buy 95% LTV @4% Source: Hometrack > Rental costs per week are 20% higher than the cost of buying with an 80% LTV mortgage > Shift to 95% LTV at 4% borrowing under Help to Buy and renting is on a par with buying – very optimistic assumption on mortgage rate > Too many unknowns on the details of the Help to Buy MIG and flows into re-mortgaging versus home purchase #hometruths
- 9. 9 © Hometrack 2013 What incomes/products work in which markets ? £0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,000 £80,000 London SEast East SWest WMids Y&Humber EMids NWest NEast Incomerequired Buy outright Private rent Affordable rent (63% OMRV) LCHO 35% initial sale Source: Hometrack > Establish incomes to afford different tenures > Make sure there is a market for the housing tenure/product > Understand the choices for households > Ensure strategies are tailored to market/affordability dynamics #hometruths
- 10. 10 © Hometrack 2013 Summary > No end in sight to level of capital values > Banks still de-leveraging balance sheets – strong political pressure to lend > Occupancy dynamics differ between renting and buying > Impact of Help to Buy uncertain > Solutions need to come from local housing markets and their dynamics #hometruths
- 11. 11 © Hometrack 2013May 21, 2013 Hometrack 6th Floor, The Chambers Chelsea Harbour London SW10 0XF enquiries@hometrack.co.uk www.hometrack.co.uk
- 12. Home Truths: the scale of Britain’s housing crisis and how to fix it Vidhya Alakeson Richard Donnell Natalie Elphicke Keith Exford Campbell Robb Jules Birch @resfoundation …………………………………………………………………………………………………….. #hometruths