Home ownership is pursued almost as a right in Britain but the housing market has a history of boom and bust — and fears are growing of a new bubble.
The Bank of England, three former finance ministers and the Organisation for Economic Cooperation and Development (OECD) have all raised concerns that rising prices could threaten Britain’s economic recovery.
House prices across the country rose at 10.9 percent in the year to April, the fastest rate for four years. In London, the increase was 18 percent, according to Nationwide, Britain’s leading mortgage provider.
The cost of a house in the capital is now 20 percent higher than it was at their previous peak before the financial crisis in 2008 sent values tumbling, although the rest of the country has yet to regain pre-recession levels.
Buying their own place is a dream of many Britons, encouraged by successive governments, notably that of former prime minister Margaret Thatcher, which allowed tenants of social housing to buy their homes.
But the dream is becoming harder and harder to realise.
In the early 1980s, the average first-time buyer was 27 or 28 years old and paid an average of £17,000 (the equivalent of £49,000 or 60,000 euros/$83,000 in today’s prices) for their home. Today, they are 30 and pay an average of just under £147,000, according to a study by HSBC.
In London, the average property now costs £480,000 (590,000 euros) according to online portal Rightmove, 14 times the median salary and a sum beyond the reach of key workers such as nurses and many teachers.
Some of the growth has been fuelled by foreign investors looking for a safe haven for their money.
In a new record for property in London, a buyer from Eastern Europe reportedly bought a penthouse in an exclusive development overlooking Hyde Park recently for a staggering £140 million.
Finance Minister George Osborne sought to calm the rampant overseas interest that risks transforming parts of the city into ghost streets, by announcing in March a new tax on high-end properties owned by non-residents
“We know we should be nervous about what’s going on in the housing market,” the Bank of England’s outgoing chief economist Spencer Dale told parliament earlier this month.
Jon Cunliffe, deputy governor for financial stability, has also said that spiralling property prices are the “brightest (hazard) light” on the Bank’s dashboard.
The OECD added to pressure to cool the housing market in a report last week, warning that prices were soaring when compared to rents and household incomes.
It urged measures to “address the risks of excessive house price inflation”, in particular by introducing more restrictions on the government’s “Help to Buy” scheme.
The programme was introduced last year in England to help buyers struggling to save a deposit, and has since then been taken up by 19,000 people.
Participants need only provide a five percent deposit on a home up to £600,000, with the government providing a loan worth 20 percent and a mortgage making up the rest.
Numerous experts, including three former finance ministers, have warned of a chronic shortage of housing and warned that “Help to Buy” is pushing prices higher.
But Osborne has defended the scheme and insisted the Bank of England had sufficient powers to act if it felt the housing market needed cooling.
“I’ve said we should be vigilant about the housing market and this government has given the Bank of England the powers, the tools to do that in an independent way,” he told the BBC last week.
As Britain’s economic recovery picks up speed, the OECD expects the Bank of England to raise interest rates from 0.50 percent — the record low maintained since March 2009 — to 1.0 percent next year.
This would raise the cost of mortgages with variable rates, about half of all mortgages in Britain, along with the accompanying risk of a rise in repossessions.