Here’s the common misconception:
Rising house prices are forcing people to have to borrow more? Wrong!
It’s borrowing (or to be precise, being able to borrow more to pay more) that results in rising house prices!!
Debt resulting from such higher house prices could actually destabilise our nation’s economic recovery.
That’s why this problem requires to be resolved.
Our ‘reasoned‘ conclusion and the solution is briefly: -
That estate agents were never originally intended to just sell houses. Their original role was in fact to manage estates.
What they do now is too much of an abridged historical agent’s role and this has become a major part of the current problem. They have become too specialised, by concentrating mainly on trying to get the best price for each vendor in what are ever changing economic circumstances.
The recent house-price increases across the housing market flow from a lack of clarity about what the true state of the market really is coupled with an inappropriate level of available mortgage finance.
Whatever the circumstances the Government owes it to us all to be clearer and more explicit about the action they are taking to stabilise the housing market and the effects they expect such actions to have on the market.
Instead it looks for all the World to us that they are tilting towards using the housing market to help get the whole economy going again; basing this on re-floating the housing market at pre-2008 prices!
The problem with this idea is its effect, which is extremely inflationary for the housing market just at a time when most people can no longer afford to pay such high prices; unless they decide to borrow very substantial sums of capital in order to do so.
If this policy should fail, those who have relied upon it and invested heavily in it, buying-in at the increasingly eye-watering prices currently being set, will end up loosing their life savings.
Our advice is that anyone thinking of risking their life savings ought to be made fully aware of what the stakes are before they consider buying-in because believe it or not, house prices do go down as well as up.
Although The Mansion House speeches of 2014 go some way towards dealing with the recent house price spikes, more needs to be done before this government leaves office in 2015.
It is clear the Government needs to apply non-monetary policies (in addition to monetary ones) to stabilise house prices at levels which most working people can realistically afford.
As well as restricting high loan to income, high loan to value and extended term loans, non-monetary measures concerning the methods used by agents to leverage house prices need to be considered for early implementation.
The reason is that the housing market is still too imperfect to be able to function correctly when our country is emerging from a downturn.
Contrary to popular belief it’s not simply about matching demand with supply. That is only true where markets are perfect ones and the UK housing market is very far from that, as most economic commentators will readily appreciate.
Full details of what needs to be done to return the housing market to ‘horizontal‘ once again and start generating an appropriate level of turnover for both house-owners and the estate agents working for them may be read in our earlier article:
Earlier article produced and updated: Full details of our proposals.