Wider context for housing affordability

Home Truths Richard Donnell, Research Director, 16 May 2013

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© Hometrack 2013

Overview

> Affordability debate starts with the price of private housing and the cost of accessing it

> No major re-correction in house prices

> Pressure on rental markets

> Impact of government schemes to stimulate demand

> Local solutions for local housing markets

> Summary

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© Hometrack 2013

Low turnover creates scarcity and supports house prices

Source: Hometrack

0%

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> Low churn creates scarcity and supports prices

> Historically low turnover currently at just 4% – a move every 25 years

> Exacerbated by cost of moving and low inflation

> New housing completions well below household growth rates add to scarcity

> 43% sales in 2012 were cash buyers or BTL investors

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© Hometrack 2013

Low mortgage rates support pricing for existing owners

Source: Hometrack - Note: Implied house price is what could be bought using 35% net income to meet mortgage repayments at prevailing LTV and average mortgage rate over time

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Actual house price UK

Implied house price

> Comparison of actual house prices against implied house price

> Clear disconnect between actual and implied prices in late 1980s and mid 2000s.

> Support from lower interest rates clear over 2008-date.

> Implied prices very sensitive to changes in mortgage rates

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© Hometrack 2013

Lower quartile price of a 2 bed home is lower …

Source: Hometrack

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© Hometrack 2013

… but higher deposit requirements offset lower prices

Source: Hometrack

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© Hometrack 2013

Pressure on private rental market

Source: Hometrack

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> Two rental markets – one in London and rest of UK

> Rental growth outside London has been limited averaging 1.5% pa

> Rents doing well to rise given pressure on household incomes

> Drivers of affordability more complex than buying due to impact of occupancy

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© Hometrack 2013

Affordability – renting v buying

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Rent

Buy 80% LTV @3.75%

Buy 95% LTV @4%

Source: Hometrack

> Rental costs per week are 20% higher than the cost of buying with an 80% LTV mortgage

> Shift to 95% LTV at 4% borrowing under Help to Buy and renting is on a par with buying – very optimistic assumption on mortgage rate

> Too many unknowns on the details of the Help to Buy MIG and flows into re-mortgaging versus home purchase

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© Hometrack 2013

What incomes/products work in which markets ?

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Buy outright

Private rent

Affordable rent (63% OMRV)

LCHO 35% initial sale

Source: Hometrack

> Establish incomes to afford different tenures

> Make sure there is a market for the housing tenure/product

> Understand the choices for households

> Ensure strategies are tailored to market/affordability dynamics

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© Hometrack 2013

Summary

> No end in sight to level of capital values

> Banks still de-leveraging balance sheets – strong political pressure to lend

> Occupancy dynamics differ between renting and buying

> Impact of Help to Buy uncertain

> Solutions need to come from local housing markets and their dynamics

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© Hometrack 2013April 11, 2023

Hometrack6th Floor, The ChambersChelsea HarbourLondonSW10 0XF

enquiries@hometrack.co.uk

www.hometrack.co.uk

 Home Truths: the scale of Britain’s housing crisis and how to fix it

Vidhya AlakesonRichard DonnellNatalie Elphicke

Keith ExfordCampbell Robb

Jules Birch

@resfoundation

……………………………………………………………………………………………………..

#hometruths