Affordability issues and rising personal loan debt may impede house price growth

Affordability issues and rising personal loan debt may impede house price growth

Affordability issues and rising personal loan debt may impede house price growth in the coming year. Apropos by D.J. Alexander has analysed official data and found that housing affordability remains difficult at the same time that the value of unsecured personal loans has increased by as much as 22.5% over the last five years which is likely to reduce property affordability for many individuals.

In 2018 (the latest year for which there is data) housing affordability stabilised following five years of decreasing affordability but remains considerably worse than 20 years ago. The substantial increases in the affordability ratio which increased in the mid 2000’s have not been reduced to pre-recession levels and remain substantially higher than 20 years ago. Housing affordability varies from the lowest in Copeland in the North West of England where it is 2.5 times average workplace-based earnings to Kensington and Chelsea where average house prices are 45 times the average workplace-based earnings.

At the same time the value of unsecured personal loans has risen substantially in some parts of the country with the largest increase occurring in the East of England at 22.5% over the last five years to just 8.5% higher in Scotland against a British average of 18.2%. The total amount outstanding for Britain in the second quarter of 2019 was £35.27bn.

David Alexander joint managing director of apropos by D.J. Alexander, commented: “These figures highlight just how great an impact the property boom of the mid to late 2000’s had on the housing market and the long shadow it continues to cast across the country. Affordability remains an issue for many people as more stringent lending criteria has limited mortgage lending although there is no doubt that it has improved stability in the housing market.”

“The substantial increase in unsecured personal lending hints at a growing demand for funds which could potentially limit future property lending for many in the country. Of course, the data does not separate lending for property owners and renters, but it must be safe to assume that a substantial part of this lending is to home-owners.”

David continued: “Additional lending on this scale could limit moving home given the much more restrictive mortgage lending criteria applied over the last decade. While this has worked and created a more stable market the danger is that it holds the market back if there is any hint of contraction.”

“Growth in demand will continue as the population continues to increase and there are only two ways to improve affordability and that is to increase supply or ensure that incomes rise at a faster rate than house prices. It is unlikely that incomes will rise ahead of house prices, so greater supply is essential if the balance of affordability is to be maintained. A coordinated approach of building more social housing, increasing the number of affordable homes, whilst providing greater financial and regulatory encouragement for the housebuilding sector would help ease overall demand on the sector and produce steady, rather than exceptional, growth.”

David concluded: “The key issue is ensuring that the marketplace remains vibrant and dynamic without becoming uncontrolled. Encouraging growth while discouraging recklessness is the key as nobody wants a return to boom and bust but equally there must be incentives for the housing market to ensure the current generation sees home ownership as an achievable goal. The balancing act between maintaining stability and encouraging growth is a difficult one which has been managed quite effectively since 2008 but perhaps a slight relaxing of the financial constraints, including lending criteria, in the forthcoming budget would ease the situation and encourage growth in areas which have become less affordable in recent years.”