The house prices debate will shift in 2014, with even baby boomers starting to question relentless rises. House prices are estimated to rise about 7% in 2013, fuelled by Help to Buy.
At the start of 2004 Halifax economists forecast that house prices would rise 8% over the year, when in reality they rose twice as fast. In 2008 Nationwide forecast that prices would be flat for the year – when the outcome was a 16% fall. At the start of this year, Halifax predicted prices would move between plus or minus 2%. The outcome? There are still a few days to go, but we can be pretty sure the figure will come in at a Help to Buy-fuelled 7%. Economics is the only field in which two people can share a Nobel Prize for saying opposing things, and the supply of economic forecasts always exceeds demand at this time of the year. Still, this is what they’re predicting for 2014.
The Royal Institution of Chartered Surveyors (Rics) thinks prices will rise across the UK, with London set for another 11% jump. Rightmove, the property website, reckons UK prices will be up by 8% next year, with the south-east leading with gains of 10% (although it sees London actually lagging, rising by only 6%). Savills, the estate agents, expects price growth of around 6% in London and 4% in the north. The Office for Budget Responsibility, which has had to play catch-up on its economic growth forecasts, is doing the same with its forecasting on house prices. It suggests prices will be up 5% in 2014, accelerating to 7% in 2015.
I liked the comment from one reader (“Galaxina”) who saw the Rics figures in a Guardian story online. “Thank goodness the government are ensuring supply will outstrip demand with well-thought out schemes like Help To Buy. It’s sure to quell these insane rises.”
My prediction? The debate on prices over the next year will finally shift to one where more people regard rises as a bad thing rather than good – even the baby boomers who have benefitted most – as they see their sons and daughters denied the chance of buying a home fit to raise a family in. The rise in rents will also move to the fore.
Yesterday LSL, which runs the biggest letting agency network in the UK, said that in 2013 rents rose twice as fast as wages. More people are working (a record 30 million are now in work in the UK) but far too many are on near-minimum wages, and a painfully high proportion of their income now goes on rent. We’re creating a country where the property price furnace is sustained by ever more low-wage workers in supermarkets and call centres, their employers effectively subsidised by tax credits, who pay ever higher rents to landlords, who also sucker in billions from the housing benefit budget. It’s corporate welfare on a colossal scale.
Every day an extra 310 people who have jobs – one working person every five minutes – are forced by rising rents to turn to the government for housing benefit to keep the roof over their heads, according to figures from the National Housing Federation. The in-work poor, who have no chance of buying, and can only afford to rent with housing benefit, have cost the taxpayer more than £12bn since 2009 – money that could better have been spent on paying for quality, secure, rented accommodation in the social sector.
But in broken Britain that won’t happen when so much money is flowing upwards to landlords, and the employers of tax-credit funded jobs. “We will make work pay,” said George Osborne, omitting to add “your landlord”.
So what does this mean for your personal finances? If you’re renting, the outlook will remain grim. If you’re buying, the forecasts suggest you’ll get a better deal now rather than waiting – but with the flood of low-pay jobs pushing unemployment below 7%, expect an earlier rise in interest rates than predicted. So go for a long-term five-year fix rather than the cheap, rather pointless, two-year deals.
Beware the London market, where prices must be close to their ceiling. And if you’re an existing buyer with a mortgage, make overpayments now to prepare for the rise in interest rates, which could come as soon as late 2014.