The Silent Culprit Behind High Property Prices In The UK
Have you ever wondered why house prices keep on going up? I do, so I dug up a few articles on the topic and the answers I discovered would definitely shock you!
Dr Alla Koblyakova, from Trent University, exposed in his new study the real culprit behind high property prices in the UK.
According to the government, low supply in housing against high demand is propelling house prices to reach new heights almost every month. Thus, they are supporting programs that will increase the supply of newly built houses in the UK.
Dr. Koblyakova’s study, on the contrary, says that increased supply of newly built houses directly impacts property prices.
In fact, the study concludes that every 1 per cent increase in supply of new homes causes the ratio between an individual’s mortgage payments and their income to worsen by 9 per cent.
This study shows everyone that the property market behaves way differently from how officials assume it to move. The reality is that when supply of new houses increase, lenders tend to relax their conditions and, in turn, the amount they lend to buyers increase. So when more buyers are able to pay a higher price for a house, it creates an environment for high property price averages, said Dr Koblyakova.
As a solution Dr. Koblyakova wants government officials not to focus their resources solely on building new houses, but instead also start programs regulating the supply of housing finance.
He added that the government officials could also motivate lenders to offer longer mortgage contracts to reduce the size of monthly mortgage payments.
Dr. Koblyakova argues that monthly mortgage repayments may decrease if they can be paid for a longer period like 30 years.
Bob Pannell, chief economist at the Council of Mortgage Lenders, agrees in part with Dr. Koblyakova. “The almost exclusive focus on boosting new construction seems an incomplete strategy for delivering a sustainable and healthy housing market,” Mr. Pannell said.
Pannell points out that even if builders would be able to deliver the 250,000 or so homes needed in England, the cycle of low housing supply would still return in a few years when all the new stock become inhabited; hence government should also create measures that nudge towards better use of the current stock.
Rick Otton, a master in buying and selling houses without need for getting new mortgages, offers a solution that combines utilisation of current stock of houses and affordable financing.
According to Mr. Otton, most existing property already has a bank loan on it and sellers let go of these existing property because they don’t want to pay the debt on these properties anymore. Rather than go to the bank and ask for a mortgage to pay for a house, why not just shift all the existing debt from the seller to another person who’s willing to assume the loan to get the chance to buy a house? In that way, it becomes less taxing for buyers to purchase property, and it helps distressed mortgage holders move away from unwanted debt quickly.
This goes to show that simple and creative thinking can help us solve a problem like high property prices in our own little way even without the intervention of big government programs.