According to information from the Department for Communities and Local Government www.odpm.gov.uk.
The average house price in the 1950s was around £2000.
In the 1960s, prices crept up to £4000.
In the 1970s the average price went up to £20,000.
In the 1980s, the prices went up to £55,000.
By the end of the 90s, the average price was £92,000.
In the period 2000 to 2005. The price had doubled again with the average price around £190,000
So where has all this money come from? Is the same house really worth double what it was six years before. Many people have chosen to take some of this value out of their houses by taking out secured loan against the property but are they richer or do they just feel more wealthy?
It is all very well enjoying the benefits of this additional money now, but ultimately, it does have to be paid back. So by taking out the money today, we are living on money that we won't have in the future. You may feel more wealthy because you have borrowed money against your house and have more money to spend but you have also increased your debts. You owe more money than you did before.
The only way to actually realise that increase in the value of property is to sell the property. But since it's our home, we need to buy another one to live in. So unless we downsize. There is no real gain.
The biggest difference between now and the 1970s, is the ease of obtaining credit. In the 1970s it was difficult to get a mortgage. You had to apply and then keep your fingers crossed hoping that it would be approved. That was a limit to how much money, the building societies and banks had available for mortgages. Many people were turned down, even though they had good credit ratings, simply because the building society had used up its allocation of money for the month.
It's all so different now. Money is readily available to anyone that can afford to pay and little regard is taken of how things might change in the future. So are we any better off, or is it just that we have a far larger debts.
It is hard to understand that the average house in 2005 can be worth double what it was worth in 1999. It is significant that for this period, interest rates have been at an historically low level. It is unlikely that they will remain so in the longer term. If rates start to rise then there will be a squeeze on people who have over borrowed and many will find they are unable to comfortably deal will with their debt payments.
Another significant change in recent years in the housing market has been a number of people investing in property to let. Many of the properties that have been purchased as investments have been purchased with borrowed money on an interest only type mortgage. These have proved to be good investments over recent years as house prices have soared. However, if the interest on these loans becomes greater than the income from the rent then they only make sense as an investment if house prices continue to rise. However, if interest rates do rise it is likely that house prices will at best stagnate and they may even drop back to some degree.
If this were to happen then there would be a surge in investment properties being put on the market, which would lead to a glut of the sort of properties that are typically rented. These are usually small flats and houses at the lower end of the market. These sellers would be looking to dispose of their properties, fairly quickly, so the properties would be priced to sell and they would be prepared to drop the price to make a sale. This would destabilise the lower end of the market, which would have a knock-on effect in reducing house prices, generally.
So it would seem that house prices are decided more by the interest rate and ease of obtaining credit rather than any other factor. There is no question that there is a limited supply of housing and a significant demand for it but the value of property is still restricted by what people can afford to pay. While interest rates remain low house prices will probably continue to slowly increase as people are able to borrow more and more money. If and when interest rates start to rise significantly that may change.
The fairly recent surge in the price of fuel is bound to have a long-term effect on people's finances and the amount of available money they have to spend. The long-term view seems to be that fuel prices will remain at current high levels
and that interest rates are likely to rise.
So now would be a good time to take control of your debt and reduce the size of your credit card debts so that if rates do rise you will be able to afford the repayments on any remaining loans. Far better to be prepared than to struggle, if and when your circumstances change.
Sidney Winthrop has written several articles about personal
finance and debt management. You can find more information
at www.moneywell.co.uk and discover more about how you can reduce your debts. |
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