According to Andrew Frankish, Managing Director at Mortgage Talk, this forecast is entirely credible, given the continuing shortage in housing stock over much of the United Kingdom.
'Historically, our planning legislation has restricted the number of new builds to much less than their natural level of demand. The net result is a chronic shortfall in the number of homes available,' he states.
'The Government's forecast tells us that, by 2026, an average first time buyer will need a staggering ten times their salary to purchase a starter home, compared to seven times in the present day, even if the rate of house building increases sharply,' adds Frankish.
'This worrying trend is compounded by various social issues, such as the rise of single person households, as well as the increase in the number of migrant workers from the newest European states, especially settling in the South East of England,' he explains.
Rates On Hold
This news comes hot on the heels of the Bank of England's decision to keep interest rates on hold in June, a choice that Frankish is pleased to note.
'The Bank of England is caught between two opposing forces,' he comments.
'On the one hand, house prices have risen well above the rate of inflation for the past few years, experiencing double digit growth in many regions for the last five years or more. But, on the other hand, businesses are starting to worry about the cost of borrowing and, moreover, the strength of the Pound making our exports uncompetitive, and flooding the domestic market with imported goods,' he states.
'This polarity between two opposite market trends means that the Bank of England has to tread carefully, if it is not to upset the long term economic growth we have enjoyed for the past decade or so,' comments Frankish.
'It's very true to say that recent modest interest rate rises are having some effect on the market,' says Frankish. 'And, although I am pleased with the bank's decision yesterday to leave interest rates as they are for the moment, we actually welcome some heat being taken out of the market, as this will help stabilise prices and hopefully herald the return of the first time buyer.'
'We are in little doubt that there will be at least one further slight rate rise during the year,' Frankish continues. 'These may be necessary to help keep house price inflation down at a sensible level. Ideally, we'd like to see rises of about 7% or 8% year on year, which would help to keep average prices in check,' he concludes.
