Average House Prices in 2013

Average House Prices in 2013

The recent rises in house prices across the UK alongside the likelihood of continued growth have given rise to fears that the country is facing another housing bubble. According to the Office for National Statistics (ONS) the average house price in 2013 in the UK is now £247,000, the highest figure since the index was first calculated in 1968. Overall, prices across the UK rose by 3.8% in the year to August 2013, up from 3.3% in July.

However, there are huge variations around the UK which are affecting these figures. Prices in Scotland are actually falling, whereas London price rises in the year to August, at 8.7%, were more than double the next biggest increase of 3.8% in the East Midlands.

But just what has caused this bubble to form in the first place? There are many different factors at play here, which together have culminated in price rises that are simply unsustainable. Currently, chronic underbuilding cannot keep up with the population’s demand for housing, and that demand is high. As well as this, low interest rates, previous reckless lending and borrowing coupled with 110% and interest-free mortgages have all contributed to unaffordable housing.

As a result, it is clear that although house prices continue to rise across the UK, the issue of sustainability is not a nationwide issue. However, London is certainly looking at a housing bubble which has seen the average asking price of a home surging by more than £50,000 in October 2013. Rightmove, one of the UK’s largest property websites, noted that the average asking price in London rose to £544,232 in October from £493,748 the previous month – an increase of more than 10%. In contrast, across England and Wales, the rise over the month was a more modest 2.8% to £252,418.
This acceleration could put the prospect of owning a home out of reach for many buyers despite the expansion of Chancellor of the Exchequer George Osborne’s Help to Buy scheme. Although Help to Buy could certainly contribute to buyers in the rest of England and in Wales, Londoners face deeper challenges. The real issue here is not so much with raising the money needed for a deposit as it is with the affordability of mortgage repayments. Quite simply, the average house prices in London are far beyond the reach of the average salary.
Another problem with the Help to Buy scheme is that, although it allows buyers to acquire a house with a 5% deposit, it is capped at properties costing under £600,000. This means that prime inner-London properties are certainly out of reach for buyers, which, according to Rightmove, have an average price of £937,110. Indeed, as the prospect of homeownership moves ever further out of reach for Londoners, particularly those in their twenties, many must depend on parental assistance rather than the government’s Help to Buy scheme.

As the Nationwide building society released figures showing the average UK home is increasing in value by more than £50 a day as of October 2013, fears continue to grow that perhaps the Help to Buy scheme has not been so helpful after all. Many now view renting as a long-term reality rather than something to put up with in your twenties, as, even with help, mortgage affordability is simply out of the question for millions of people. As well as this, warnings that such schemes actually contribute to the problem by raising demand, and in turn, house prices, have led some MPs to criticise the scheme as a hindrance, rather than a help.

Business Secretary Vince Cable has warned of the dangers posed by the Help to Buy scheme, noting the signs of “serious housing inflationary pressures” in parts of the country, particularly London. In terms of economic impact, Cable suggested that the extreme rise in house prices poses a threat to a sustainable long-term economic recovery, something that was also a point of concern for the chief executive of Barclays, Antony Jenkins and the chief executive of Lloyds Banking Group, Antonio Horta-Osorio. However, the government have continued to downplay these concerns, backed by the EY Item Club – one of the country’s leading economic forecasters.

The ramifications here are clear for buyers who have benefited from the Help to Buy scheme, as how will such buyers cope with repayments once interest rates rise? As of 2013, these interest rates are at a record low. Inevitably they will rise, if not next year, certainly in 2015. However, the scheme’s lack of efficacy was unintentionally highlighted by Ben Broadbent of the Bank of England’s monetary policy committee when he noted that as “the numbers entering the scheme are relatively low” it is unlikely that many buyers will experience financial difficulties when interest rates start to rise, given the low level from which they are starting from.

Our obsession with house prices comes from more than the need for a roof over our heads. In recent years, with salaries stagnating and pension contributions steadily losing their worth, many now look to property as a form of wealth acquisition. Your house is now seen as much more than a home; it is an investment. You can supplement your income by renting it out, or even better, you can secure your future by supplementing your pension, as 52% of over-50s now plan to use the equity in their homes to help fund their retirement.

However, for some it is simply a case of having a place to call home. The housing charity Shelter issued a staggering report in October 2013 which pointed out that, unless house prices are stabilised, most people in their 20s will stand less than a 50% chance of ever owning a property to live in. Sadly, the current predicament in the UK means that “hard work” and a “good job” no longer equate to owning your own home.