The Real Reason House Prices Are Rising - Why Help To Buy Is A Good Idea

HAMISH_MCTAVISH

At the moment saving a deposit remains the main obstacle to ownership, as few can save the required deposit of 10% or more, on top of stamp duty and legal fees.

Help To Buy hopes to provide the answer. But most critics think it’s a terrible idea. Largely because they believe it will push property prices higher, creating a bubble that is dangerous for the economy.

This is why they're wrong…

Prices are rising anyway

It’s undeniable that property prices in the UK are too high. The Organisation for Economic Co-operation and Development (OECD) suggests that prices are 20% too high in comparison to earnings and 30% higher in comparison to rent.

Ultimately, this is because demand outweighs supply.


There are two ways of addressing this, of course. One is to increase supply and build more homes, but on a crowded island, which values its green space and has restrictive planning laws, this is far easier said than done.

The other is to stem demand, hence the critic’s argument that first-time buyers shouldn’t be given a helping hand to buy. Eventually, it is argued, prices will drop to a level that is affordable.

But this doesn’t stand-up. Even if the Government doesn’t help first-time buyers on the ladder, prices will still rise.

After the market crashed at the end of 2007, prices dipped sharply falling to an average low of £151,126 in April 2009, according to Land Registry data. Since then, prices have steadily picked up, now standing at £161,458 and showing no signs of slowing.

If prices were going to drop to an affordable level, surely they would have done so already.

http://uk.finance.yahoo.com/news/first-time-buyers-need-all-the-help-they-can-get--132820528.html

Article then goes on to blame BTL, amongst others, but concedes that the real issue is the shortage of housing in the UK.

Author also rightly points out that deposit requirements are the biggest barrier to entry, and that shutting FTB-s out of the market will not cause price falls, but rather force them to remain as renters as landlords buy houses instead.

Graham_Devon

I know it's far from me to say this, but it's a very poorly written article.

The reason for prices not dropping further appears to literally be "surely they would have dropped already"...

If prices were going to drop to an affordable level, surely they would have done so already.

The reason now is an "excellent time to buy" is literally because over the past decade people have mades loads of money....

For those with the equity - typically property owners who have benefited from rising house prices over the past decade or so - now is an excellent time to buy.

The rest of the article is a case of "but, if, might, could".

Just look at this extract...looks like you have wrote it yourself Hamish!

But, if the Government can stop rents increasing at such an astronomical rate, then investors might stop piling their money into bricks and mortar, contributing to the price rises we have seen in the past few years.

And one easy way to stabilise rents, is to remove a huge glut of tenants from the market by giving them a helping hand on to the ladder. This leaves us at Help To Buy.

Now as I say, far from me to correct someones grammer, but seriously, this article is very poorly written. Even from that tiny extract we see "if the government can stop rents increasing". Surely that should say "if the government could stop".

The article is full of these sentences which don't even make sense. Looks like someones been doing some kind of essay rather than writing an actual article.

I mean, people have a go at money week, but this looks positively amatuerish compared to them!

CLAPTON

total nonsense article

demand doesn't outweigh supply; rather the balance determines the price.

shortchanged_2

Sounds very much like an article written by a property developer.

I bet she buys properties, gives them a lick of magnolia and voila.........instant £20,000 profit.

Graham_Devon

LOL...

And the authors bio...

Having worked in insurance for nearly four years, I started my career as a personal finance journalist in 2011 when I joined the MoneySupermarket group.

I still follow the world of insurance closely, but now cover all aspects of money. And, thanks to clawing my way on to the property ladder in 2012, I'm particularly interested in mortgage and home happenings.

Mr._Pricklepants

shortchanged wrote: »

I bet she buys properties, gives them a lick of magnolia and voila.........instant £20,000 profit.

Graham_Devon wrote: »

LOL...

And the authors bio...

So much bitterness....

shortchanged_2

Mr._Pricklepants wrote: »

So much bitterness....

:mad::mad::mad:

Mallotum_X

As soon as they trot out the "crowded island" meme they lose any credibility... plenty of space to build but so much of the currently suitable stuff is locked up in land banks.

the_flying_pig

So on the one side [arguing that HTB is bad] we've got the Bank of England & the IMF. On the other side [arguing that it's wonderful] we've got 'honestly-not-an-estate-agent' online housing ramper HAMISH_MCTAVISH & a young online property journo Lana Clements.

Talk about clash of the titans.

Anyway, the early argument "prices are rising anyway" is clearly a nonsense... so prices are currently rising at about a rate of about 1% or something a year, well below the rate of inflation, according to Ms Clements it follows from this that it's OK to impose a measure that could promote more inflation on top of this... I mean, it's just daft.

The little sting in the tail of the article, that, "Giving people a leg up onto the first rung of the property ladder could, in fact, help stabilise the market – by reducing demand for rented houses and so driving down returns for landlords." on the other hand is a bit, well, a bit 'out there', a bit wacky, maybe worthy of a bit more thought later on.

Thrugelmir

But, if the Government can stop rents increasing at such an astronomical rate, then investors might stop piling their money into bricks and mortar, contributing to the price rises we have seen in the past few years.

And one easy way to stabilise rents, is to remove a huge glut of tenants from the market by giving them a helping hand on to the ladder. This leaves us at Help To Buy.

Does it require the Government to control rents? Or will market forces eventually take their toil.

the_flying_pig

the graphic at the bottom of the article is a really nice idea, & very well presented, but the numbers in it are insanely bad, total claptrap. if i was this girl's schoolteacher i'd be giving her a 'see me'.

i think that the error the journo has made is, and i appreciate that this sounds stupid but i'm almost sure that it's right, is to:

(1) quote house prices in 'money of the day' terms, e.g. £2k does sound plausible for a 1950s house; but
(2) inflate wages to account for inflation, e.g. in the 1950s £500 a year would have been a pretty good wage, but here it's listed as £9k, i.e. complete fantasy.

this obviously means that the affordability calculations are all garbage.