Housing market at risk as property prices continue to rise

May 11, 2016 by Brendan O'Neill

Property Market

As property prices continue to soar due to the current supply and demand imbalance, the housing market is at risk of collapse.

According to recent data from Resolution Foundation, more than a quarter of the salary earned by those from low to middle income households is being spent on housing costs. In 1995, the figure was 18% of income being spent on housing, in comparison to the figure today of 26%. In London, the figure increases to 28% of income covering housing costs.

For those receiving higher income levels, affordability doesn’t appear to be a problem, as high income households spend 18% on the cost of housing, in comparison to the 1995 levels of 14%.

Data released from the Office for National Statistics indicates that the average price of a house in the UK is now £291,504. In London this figure soars to £551,000. However, average income has only increased by 3% since 2007-08 and stands at £24,300. Research by Citi indicates that the ratio of house prices to level of earnings is close to a pre-crisis peak.

As interest rates are at their lowest since 2009, borrowers are comfortable taking on high levels of debt, as the cheap cost of borrowing means a mortgage is manageable. However, when interest rates do rise, more people could find themselves facing a financial crisis.

Speaking to a mortgage adviser who has taken CeMAP training will ensure that you can afford a mortgage, even when the interest rates do eventually increase.