Toughest Mortgage Affordability in 70 Years

The Building Societies Association has released a report suggesting that the affordability of a mortgage for first time buyers is at its most difficult in 70 years.  This is due to:

• High property prices compared to income multiples.
• Interest rates back to the ‘old norms’ of 5-6% pa.
• Huge deposits required to secure a mortgage.
• Higher proportionate incomes required to secure a mortgage.
• With rents up 9.2% in a year meaning those that are renting have even less available spare cash to save for a deposit.

Conclusion

House prices have risen 240% since the year 2000 but earnings have only risen 112% (source: Office for National Statistics and HM Land Registry).  This adds to the problem and perhaps a new appraoch is required by government. 

• Simply taxing landlords ever more will not work as those costs are passed onto tenants.
• Government Help to Buy schemes providing deposits does help but the government benefits by retaining a proportionate share of the equity growth, so they take it away.

Our view is to allow pension schemes greater scope to invest in or develop residential property.  There are acres and acres of derelect factories, empty shops and more that could easily be developed by pension fund capital to deliver residential accomodation. 

In directly, the tax relief we receive on our pension funds encourages us to save but if there were added incentives such as

• Your pension funds allowed to develop reisdential property by providing funds or taking pension loans to raise funds and
• Pension funds allowed to pre-invest in care fees annuities and bonds.

The above relatively simply additional permissions would help at both ends of the social spectrum, those starting out and those planning for the end.