UK House Prices look ever more unaffordable

Hello and welcome to the summer solstice and longest day of the year which with apologies to any Australians reading this is one where even the rain cannot end my good cheer after the rugby. Also the UK’s national broadcaster seems to have spotted that house prices are extremely expensive in much if not all of the UK. So let us take a look at the research it has provided us with.

The Help to Buy Scheme

This has seen several changes since it began but one of the more recent changes was what might be called a bribe to get people to start saving for a house or flat. Let us remind ourselves of the details.

If you are saving to buy your first home, save money into a Help to Buy: ISA and the government will boost your savings by 25%. So, for every £200 you save, receive a government bonus of £50. The maximum government bonus you can receive is £3,000.

Actually this both is and is not the maximum as the next bit points out.

The accounts are available to each first time buyer, not each household. This means that if you are planning to buy with your partner, for example, you could receive a government bonus of up to £6,000 towards your first home.

Many ordinary savers may well be singing along to the “It’s Not Fair” of Lilly Allen at this point. They will be singing a bit harder when they realise that higher interest-rates are paid on this type of ISA than elsewhere, sometimes much more. For example the Halifax Building Society pays 2.5% but even this is eclipsed by the Penrith and Cumberland Building Societies who pay 4%. For ordinary savers the Bank of England tells us this is the state of play.

The effective rate paid on households’ outstanding time deposits decreased by 3bps to 1.39% in April and the rate for households’ new time deposits increased by 3bps to 1.31%.


Quite a gap isn’t it?

The Problem

Readers of my output will be aware that I have long argued that house prices in much of the UK have become too expensive and therefore unaffordable. This is diametrically opposed to the official view of consumer inflation which excludes owner-occupied housing on the road to telling us that for a while now there has effectively been no inflation. If so how do we get to the situation described below. From the BBC.

Would-be-homeowners in large parts of England are being priced out of a government scheme to help first-time buyers, a BBC investigation has found……..Help to Buy Isa scheme ‘helps lucky few’

The reason for this situation is that there is a cap on the property price in the scheme.

 the maximum purchase cap of £250,000, or £450,000 in London.

This is broken down as follows. First let us look nationally.

Overall, outside London, two-bedroom homes exceed the cap in 28% of areas.

You will not be surprised to read that the issue is mostly a southern England one.

Average asking prices exceed the cap in 67% of areas in the South East, 65% in London, 61% in the South and 53% in the East.

We can narrow done a lot of the issue to London itself.

In London, an average two-bedroom flat exceeds the cap in two thirds of boroughs, while one-bedroom flats exceed the cap in a third of boroughs…Only 10% of average three-bedroom homes in London are below the cap.

In this respect London is a little like the Euro area with not only trouble within its boundaries but also trouble in surrounding areas.

All of this not only reinforces a main theme of this blog but also raises two main questions. Firstly what happens if while people are saving a deposit house prices move out of reach? That is hardly unexpected with house price rises of the order of 9% per annum. Also there is a way of this policy sort of working in reverse although the government would not put it like that. What I mean is that it is not working in the most expensive areas which does show some form of sense although of course that begs the question of why the cap is higher in London.

The latter point hits the problem that this is not the only “Help to Buy” available as if we put in the starter homes scheme amongst others we get to the situation described below by Joe Sarling.

all three policies (20% Starter Home discount; £3,000 government ISA bonus; 40% government loan) could be used in conjunction . When this happens, the Government effectively funds 53% of the home.

The UK government is using taxpayer money ( or more strictly off-balance sheet promises) to provide a put option for house prices at £450,000 in London and £250,000 elsewhere. This means that it will use “all its powers” to stop us getting anywhere near there as the increasingly unbalanced ponzi-like scheme continues.

Stagflation Alert

This caught my eye as we know that houses and room sizes have been getting smaller something of double-barrelled effect as we get larger.

Richard Donnell, research and insight director from Hometrack, said: “In order to appeal to a wider group of buyers, builders need to start building smaller houses to offer at the lower price point to help first time buyers get on the housing ladder.

Paying more for less?

House Price Boom

City-AM are hammering home this issue today although perhaps unwittingly.

Rightmove director and housing market analyst Miles Shipside noted that property prices in London have grown by almost 55 per cent since June 2010, compared to 24 per cent in the rest of the country.

Now real wages have done what exactly? No wonder we need so much more “Help”!


Care is needed with their data because they use asking prices rather than actual trading or sold prices but let us see what they tell us.

Housing market momentum pushes price of property coming to market up by 0.8% (+£2,320) to new high of £310,471.

If there has been any Brexit refendum impact it seems to be in two areas. The first is that it seems to have put some people off putting their property up for sale. Secondly there does seem to be a regional influence and guess where?

The price of property coming to market falls by 0.2% (-£971) this month, the only region to record a fall.

Yes it is London. But do not shed a tear for sellers who have seen an extraordinary surge in prices especially as we recall the nature of these times.

Capital’s +55% rise since 2010…….the price of property coming to market is still £228,632 higher than it was six years ago.

Actually the recent minor dip does hide some wide swings. If we stay central then prices in Southwark are up 11.2% over the past year whilst Kensington and Chelsea or should that be Chelski down 16%.


There is much to consider here as we note that there are some very familiar players here. Very little real wage growth meets surging house prices especially in London and the South-East. This means that even the “Help to Buy ISA” which has many similarities with a bribe may be out of range and touch by the time people have saved up. On and on its goes with little sign of any end and whilst it is good that the BBC is at least covering some of the consequences where is the analysis. Oh and so far we seem to have a situation where even the buy-to let pre Stamp Duty rise and the Brexit referendum seem only minor inconveniences. Intriguing when for example we see a strong move in the UK Pound £ this morning to US $1.46.

Meanwhile some relativity. From Jonathan Eley of the Financial Times.

“My mansion and pool cost £9,000 to heat. What can I do?”  Thanks to for keeping it real…

Mind you it may be a case of the biter bit as the FT only recently informed us of this.

Aged 45, she works in IT marketing for a large consumer goods company and lives in a £700,000 house in Croydon, south London. Married with a four-year-old daughter, the combined income of Nisha and her husband nudges £200,000 a year. Life should be good, yet incredibly, Ms Sharma claims she and her family are struggling.

Of course the FT is playing to its demographic but we do get some humour as someone points out why does someone who earns £200k live in Croydon! Apologies if you do not get that but for south Londoners like me it is hard not to smile. #PrayForNisha indeed.







32 thoughts on “UK House Prices look ever more unaffordable

  1. All the “help” the government keep on giving out just results in property prices going higher. How many more schemes can they dream up?

    Anyone wanting to buy their first home must now be praying for Brexit if that will lead to lower property prices. Ditto for anyone bursting at the seams in their current property and wanting to trade up. OK their present property will fall in value but the one they want to buy will fall by more in terms of actual cash. That elusive second step up the “ladder” will become a little closer.

    Housebuilders must be doing very nicely from the government’s largesse.

    • “All the “help” the government keep on giving out just results in property prices going higher.”

      That’s the aim. The only aim. Keep inflating the bubble.

    • There is a popular fallacy about prices falling in the event of Brexit: All the wretched In claims are that interest rates will rise, so the monthly payment will remain the same, but the interest component will rise, meaning the capital component will fall. That in an asset market means the asset prices will fall. The Leavers, especially the hate preachers of UKIP, (who have clearly learned nothing) claim that less immigration will cause prices to fall – strange really, because they still say we will take 50K net, so on the fallacious supply and demand argument alone, prices will still rise – unless they are planning some enforced emigration.

      • I’m not in favour of Brexit because I have some right-wing fantasy about returning 1930’s Britain.
        I am in favour of Brexit because I look at what the EU institutions do to their own citizens, and am so outraged and disgusted, that I would honestly prefer bloody revolution.

        • Blame was quite popular in the 30s. “The more economic difficulties increase, the more immigration will be seen as a burden” – yes, you’ve probably guessed: Adolf Hitler 1927.

          Spain in particular thought it could live off cheap mortgages and inflated house prices – I don’t see how the EU “imposed” that as it has no control of monetary policy. Of course, you might compare it with the current UK situation – a UK, whose monetary and housing policy is not run by the EU either.

          You think the world should lend Greece more and more, so they can retire at 55 and work 3 hours a day? I expect the EU forced that on them too.

          It is easy to blame others.

  2. hello Shaun,

    where is the analysis?

    indeed where?

    today’s MSM is just copy and paste so I expect none at all which is why I visit your blog . Someone has to tell the truth.

    As for smaller houses this has been going on for a while now and is to be expected too. After all land is not being made any more and if you insist , as all seem too in main stream, that we can import as many people as we can, then I expect our houses to shrink even further . Hong kong ans Singapore are our examples .

    As for house prices I suspect if there was any corrections downwards that our Banks would want more QE as they are bust now !

    want 500 million in the SE? I can plan it for you right now but if you just want to wing it and piecemeal it then that will be a disaster for all concerned.

    We need to fall in love with flats again and build millions of them a year

    but it wont happen – no planning you see ?


    • Hi Forbin

      There was a time when there were several quality newspapers but some of them have vacated that space. For example what has happened to the Telegraph? I am afraid that area seems to be on a downwards spiral.

      As to houses as I pointed out how much smaller can they keep getting and why is that not measured as the inflation it is rather than growth?! Anyway I do my bit for flat living and nearby (Battersea Power Station and Nine Elms) are doing their bit for flat building. But how many will be occupied and how many empty?

  3. I am late 30s and still rent privately. Due to various reason my life savings have never been liquid so any “opportunities” to buy after a price drop (eg 2010) I couldn’t capitalize on.

    as a high earner born and raised in London, I am praying for a Brexit if it will start the price correction much needed i this bonkers London market.

    The amount of market manipulation and propping up by both BoE and Government is scandalous. Its socialism for the Banks and Housebuilders and I cannot believe voters keep voting for this nonsense.

    needless to say I am VERY VERY bitter about what the London housign market has done for my quality of life!

    • the sad part is that even a modest 5% fall ove 2 years would be seen as economic arnageddon (!)

      the TBTF Banks would suffer – our illustrious MPs will not have that – they know which side their breads buttered!

      I too, would welcome a 18% fall. Maybe , just maybe, my twenty somethings kids could move out to a home of their own…….

      Shaun , mobility of labour is stymied by housing costs , why is no-one mentioning that ?



  4. Angry of Croydon!

    I live in Croydon…Shirley, Croydon. I wished I lived in Shirley Hills, Croydon but never will. I might like to live in Purley, Croydon and also never will. I might like to live at East Croydon station in Croydon. Here they are building a vast canyon flanked by blocks of flats much like the 60s blocks they have been knocking down as slums over the last 30 years all over the UK. These future slums need more than a £200,000 a year income to support the loans to buy them. Good place to live if you are a train-spotter or want the 12 minute journey to London every day where you cannot afford to buy a house. (Direct exit from the flats onto the platforms.)

    Has all the characteristics of a bubble?

    • Hi Chris

      I knew there was going to be someone! Sorry.These days I am there less frequently and some of my memories are out of date as I had a university holiday job working for General Accident who were at the bottom of the NLA Tower before they moved around the corner. Or Number 1 Croydon as we are now supposed to call it . So East Croydon as a fashionable spot is not so easy to take! Although to be fair that is like so much of South London isn’t it?

      As to your point about slums we come to the issue of measuring quality in housing which is something that Forbin has also mentioned. The answer is the same some of the growth we have claimed is simply inflation.

  5. I think some of us who are lucky enough to own a place of our own would like prices to fall. The danger is that we become asset rich and cash poor and in turn become a target for extra taxes despite the fact we have been lucky.
    Also I have no idea how the next generation can afford to buy at these levels. Post 2008 the big mistake was not letting house prices fall and now we are paying the price.
    The bubble seems to get bigger each year but will pop at some stage.

    • Hi Bez

      The danger is that the bubble gets pumped up so much that the burst is quite an explosion. It is another type of junkie culture where the more hits you have the worse is the come down. You point about being asset rich and cash poor is well made and is another failure of the financial system which should have products for this. After all liquidity for them is so cheap they could make a turn and offer low interest-rates. Too much like hard work I guess….

  6. I wonder how many young people will interpret George Osbournes threat of falling house prices as a very good reason to vote to Leave the EU. Friday morning will no doubt reveal all. Personally i’m praying for Brexit and a house price crash.

  7. Fools and greed ..a toxic cocktail.
    The example of Nisha and her husband shows that high earnings do not necessarily indicate common sense.
    Politicians ,Banksters and the media have created the narrative to entice the sheeple into debt slavery and that in turn will lead to the economic meltdown that will occur very soon.
    Deutsche Bank shares are near their all time low compare a graph of their share price to that of Lehman only this will be much worse DB has a derivative book in trillions of euros.
    The startling thing is that the politicians the media and the public cannot see that chasing house prices ever upwards is draining all the disposable income from the economy and giving it to the most sucessful criminal enterprise in history the Banks.
    Yet although they loan out money they do not have and earn interest on and repayment of the principal that they did not have in the first place,the Banks actually do the impossible and run up huge losses…..incredible .
    The Ponzi scheme cannot continue all bubbles burst and the debt bubble is the biggest bubble in history….all paper money systems in history have failed for the same reason debt and expansion of the money supply.

    • Hi Private Fraser

      I have one eye figuratively speaking on Deutsche Bank too. Partly as they were an employer of mine but also because there is the feeling that something i svery wrong. Even the share price rally of the last 3 days or so of 15% has the feeling of something of a dead cat bounce.

      Meanwhile from Marketwatch on the head of the Minneapolis Fed.

      “Kashkari spoke to reporters after a speech where he said he sees “broad agreement” that current efforts by the White House and Congress to end too-big-to-fail banks has been unsuccessful.

      Kashkari told the Peterson Institute for International Economics he has found “broad agreement” that massive structural changes in the financial system and among large banks are needed.”

      Only 8 years or so up the road…

  8. For those who can work remotely, rural village houses in Bulgaria can be bought under £10,000 or maybe £50,000 nicely done with modern kitchen & bathroom. They are dirt cheap because there is no work in the villages.

    IT staff have lots to gain by leaving the UK, their skills are in demand across Europe and due to cheaper housing they will see big purchasing power gains by leaving UKs overpriced housing behind.

      • We might also ask why there is so much demand for staff in London, and comparatively low demand in the Welsh valleys or Tyneside.

        The young Bulgarians have left to seek work opportunities in cities. Many have gone to the UK, much to Nigel Farage’s chagrin. Some electricians I know went, took 1 look at a barn with 28 places in bunk beds and returned to Bulgaria. So the village demographic is an elderly, declining population.

        Property prices appear to relate closely to employment opportunities – just compare Merthyr Tydful house prices to Croyden

  9. So, what Joe Sarling is really saying that when the next housing collapse comes, the Government will be taking the losses directly, rather than having to pump capital into broken banks. No wonder Barclays are now offering 100% if Mum &b dad put up 105 on which they get a much better rate than a simple savings account.

    How about we realign risk and reward?

      • Hi David

        Unless you are Welsh then the football was not entirely a cunning plan as I have found out myself! Ah risk and reward I remember those days. They were the ones which preceded front running of central banks.

        • I am Scottish, although I didn’t need to join my fellow countrymen in looking for Slovakia in an atlas – I have just had a few drinking sessions with them and they are great people! However, I think Roy’s cunning plan will get England an easier opponent.

          Everyone – Govt, banks, mortgagors – seems to think that someone else is taking the risk of the top level of the mortgage. My (English) local authority decided to offer some of these Govt-style loans, but when I asked if councillors would pay any losses, I was just assured that “it would not happen”. I heard that from Barclays a year ago, although it is clear Mum & Dad are in for the first 10% of their loans.

          I see HSBC are offering 0.99% mortgages now – they want 13% for educational loans. Ever wondered why our productivity is so poor?

  10. And my nomination for the song for today’s blog is Yazz – The only way is up! At least for quite a while yet before we can put the Quo’s vinyl on the the turntable – Down Down ……

    • Hi Noo2

      I am pleased that you have replied in a musical vein because I wanted to reply to your mention of Joy Division last week. Being a fan of the UK’s Best Part-Time Band on BBC 4 I have recently been watching Peter Hook the bass player. Indeed let me give a shout out to the whole program and indeed the bands as it has been very good.

  11. Hi Shaun,
    Love the blog – it is a rare window of enlightenment on an overcrowded cruise ship of piffle and spin!

    More often than not, the price of property is a function of it’s ‘monthly cost’ rather than the total purchase price, and until this ‘monthly cost’ starts to increase, property prices are unlikely to fall, since people always seem happy to spend whatever they can borrow; particularly on an asset that ‘always goes up’. Property is also one of the few assets that can still generate a respectable yield, so remains attractive to investors and speculators (for the time being).
    It seems that super-prime property in many parts of London has seen it’s day, with numerous properties having dropped in price by over 20%. It is unlikely that this sector will re-visit those heights any time soon, it also has less exposure to the banks, so any fallout is unlikely to have a wide reaching detrimental effect and probably wouldn’t require any bailout.
    I have worked close to the property market for nearly 20 years with an incredulous pessimistic outlook (how can it keep going up – it doesn’t make sense?!), however looking at macro economic factors and cycles has lead me recently to believe that we may well see prices dip slightly over the next 12 months then continue to increase over the following five years with an almighty collapse during the next term of government. Any forthcoming ‘dip’ is likely to be met with additional stimulus and a possible rate cut, as (further) extreme measures are taken to prevent a full collapse, however this could be the last throw of the dice and buy a few more years at best… So don’t bet on a house price collapse just yet!

    • Hi BobbyG and both welcome and thanks

      I can’t disagree with any of that. I do have an alternative scenario though which is that should we leave and the UK Pound £ falls as the “experts” have told us then London property would look a lot cheaper to foreign buyers again. Another spin of the wheel?

  12. Useful comments – I learned a lot from the facts – Does anyone know where my assistant would be able to get a sample a form form to fill in ?

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