Business Recovery and Insolvency Practitioners

NEWS: House prices have continued to rise for the last 10 years

Added: 04/07/2006

House prices have continued to rise for the last 10 years and over that period prices have increased from an average of £61,544 (December 1995) to £170,238 (December 2005). This means that the average house price has increased by an incredible 277%.

Historically, annual growth in house prices has been of the order of 8.25% per annum, at the same time wages have climbed, and you would have thought that this would support the increase in house prices, however, in reality wages have increased at a much slower rate than house prices. To give you some idea, in 1997 the annual earnings was £19,375, in 2005 this had increased to £26,880, this is the mean average annual income for all workers including both overtime, bonuses etc but before any deductions for PAYE and NIC.

According to the ”annual survey of hours and earnings”, half of all workers in 2005 earned less than £18,180, again before deductions for PAYE and NIC.

In summary therefore, house prices have increased by 277% and average gross annual earnings have only increased by 39% over the same period.

Mortgage lending for the month of May was at its highest since records began and there is clear evidence that house prices continue to rise, but we believe, especially in view of the above, that the housing bandwagon can only come to an abrupt end. We do not anticipate, however, that there will be a slump in house prices because interest rates continue to be very low, although there is talk that there will be a rise in interest rates. This sounds probable when bearing in mind that inflation has broken the BOE parameters.

Many people have quite naturally used equity in their property to carry out home refurbishment, purchase second homes and generally improve their quality of life, however, this has always been on the understanding that house prices would continue to rise and interest rates would stay low.

Obviously house prices cannot continue to rise at the same level as they have done recently. To compound matters energy costs have increased substantially over the last 18 months and this in itself has caused inflationary pressures. With this in mind it is probably thought interest rates will have to increase as they have done in the rest of Europe and America, and this will compound the financial burden not only on individuals but also industry, who have, in the last month or so increased prices of goods leaving the gates.

It may therefore, be a time for consolidation. We are aware that personal debt is at its highest level since records began and people will have to be far more prudent in the way they manage their finances.

The above observations are only our overview and are not necessarily the thoughts of others and must therefore not be relied upon.

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