This suggests that the South cannot expect much positive news on house prices in the short and even medium-term.
The study, however, also reveals that, while Southern house prices are higher in absolute terms compared with the rest of the country, house price growth has lagged behind that of the UK over the last 16 years and this trend has been accentuated during the last two years. Whereas nationally house prices have risen by 40% in the last two years, in the South East and London prices have only grown 24% and, in the South West, 31%.
The best performing Southern region in income growth terms is the South West, which has matched national income growth during the last 16 years (though less in the last two). This helps explain why the South West has seen the highest rates of house price inflation in the South during recent years.
Despite more moderate house price rises, falling household income compared with the UK has resulted in the Southern regions experiencing their highest ever house price income ratios.
This marked pressure on affordability suggests that house price inflation in the South will continue to lag the rest of the UK. First time buyers currently represent only 10% of the market in the South compared with a more normal average percentage of 30% over the last 15 years. It is very clear that this group has struggled to afford property at the current price levels.
Despite the pressures, the probability of a property price crash is not great provided interest rates do not rise further. Unlike house price income ratios, mortgage repayments as a percentage of income have not risen to anywhere near record high levels.
Matthew Wyles, Group Development Director, comments: “There is no doubt that price inflation in the South has made homes progressively less affordable, particularly because household income growth has lagged behind that of the nation as a whole. Low interest rates have helped to ease the burden but the market is in a very delicate state of health. The last thing the patient needs at the moment is a cold shower from a Base Rate increase.
“It has been suggested that the market’s weakness was mainly attributable to alleged political uncertainty caused by the General Election. We shall soon test the validity of this argument.
“The recent rise in the threshold of Stamp Duty to £120,000 is to be welcomed but any recovery will be rooted in a blend of lower interest rates and rising disposable incomes - neither of which seem very likely in the short term.”
