How to be a property investor: a history of property prices
This is the second article in our ten part ‘How to be a property investor’ series. Make sure to read the first one, "How to be a property investor: our national love affair with property".
Back in 1980 the average home in the UK cost £24,000. Today the figure stands at £292,000. It’s no wonder property prices have become a national obsession.
These figures come from the Office for National Statistics (ONS). It found house prices have increased by an average of 6.9% per year since 1980 with 1988 seeing the biggest annual increase of 25.6%. It hasn’t all been an upward trend though – prices fell during the recession of the early 1990s and again in 2008-2009 after the credit crunch.
The ONS figures also show how prices in London have raced away from the rest of the country. In March 2016 alone the average property price in the capital increased by an eye-watering £30,000 – roughly £1,000 a day. That means if you live in London and earn the average UK salary (£27,600), and own the average home, your house earned more in one month than you did in a year.
Other data, this time from the Land Registry, shows how capital gains have varied across the country. For example, between 2010 and 2016 capital gains ranged from -3.7% to +13.8% per year across the UK.
The highest capital gains were in Inner London while Sunderland experienced the largest average yearly decline in house prices.
The ONS and Land Registry use “price paid” data when properties are sold, whether they are mortgaged or not, to track house prices. These indexes are arguably more accurate than those compiled by mortgage lenders, such as Nationwide and Halifax.
However, all the indexes tell us roughly the same thing – the past few decades have seen a massive increase in property prices.
Whether this is a good thing or not depends on whether you own your home. While some people have undoubtedly benefited from soaring house prices, those not on the property ladder are finding the dream of home ownership increasingly out of reach. Rents have increased and saving for a deposit has become much more difficult.
So why have house prices increased so much? It was in the 1980s when the Government, under Margaret Thatcher, introduced policies to get more people owning their homes. These included selling off council houses via Right To Buy.
Back in the 1980s and ‘90s it was much easier to save a deposit and get a mortgage with lenders typically lending three-and-a-half times a borrower’s income.
But a lot has changed since then. Subsequent governments have not built enough houses, demand for housing has increased and, for a time, mortgage lenders were happy to lend at high income multiples for high loan-to-value loans.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “Over time, property prices have tended to rise mainly because we aren’t building enough housing to cope with the growing population.
The growth of buy-to-let, which has encouraged a generation of people to become landlords, has also helped push up prices as investors have competed with first-time buyers and home movers for the same properties. An era of cheap borrowing has also helped fuel a housing boom with interest rates at record lows for the past seven years and showing no signs of rising anytime soon.”
Experts are predicting further house price inflation over the next few years. High-end estate agent Savills reckons prices will rise by 17% by 2020 while online estate agent Emoov predicts the average price of a home in England will be more than £450,000 by 2030.
- Don’t miss the first article in this series, called Our national love affair with property. You can also read the third article, 'Property versus pensions.'
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.