Mortgage brokers have urged the government to intervene to keep the earnings-to-house-price ratio more affordable in a bid to protect Britain's homebuyers.
Following the Bank of England raising the base rate to 0.5 per cent, as the monetary policy committee revealed that CPI would reach 7.5 per cent in April, mortgage brokers warned unless the government stepped in with more creative solutions, generations of Britons would be unable to afford to get onto the property ladder.
Graham Cox, founder of the Bristol-based Self-Employed Mortgage Hub, said: "The fastest and simplest way to help first-time buyers and provide a path to home ownership for renters, is to make property cheaper to buy.
"In my opinion, much like the Bank of England has a 2 per cent inflation rate target, we need a stated government aim of bringing house prices down to four times average earnings."
Currently, the ratio is around eight times earnings, which Cox says has been "inflated by years of ultra cheap credit and last year's stamp duty holiday. It's a bubble waiting to burst."
He added: "More affordable housing is achievable over time through a massive ramp-up in house building, punitive taxes on property speculation and a monetary policy to maintain house prices at current levels but no higher. That way, current homeowners won't go into negative equity."
Adding to a swathe of warnings following the BoE's unsurprising rate rise today, Martin Lawrence, director of investments at mutual Wesleyan, said rate rises as a measure to countervail inflation would not be effective in protecting consumers.
"Rising inflation has sailed far beyond the target set by the Bank of England and is putting a real squeeze on household finances", he said.
Citing news that Ofgem has approved a rise in the energy price cap from April, meaning nearly every UK household will face increased energy bills, in addition to rising inflation and the imposition of a new social care tax from April this year, Lawrence said: "The rising cost of living is adding pressure to already stretched budgets.
"Higher interest rates will mean that those not on a fixed-rate mortgage will have to contend with bigger mortgage costs."
Levelling up
Yesterday (February 2), the government outlined 12 missions in its 'Levelling Up' strategy. Some recommendations aim to boost the number of first-time buyers across the UK, while others will support landlords and house builders.
But Ross Boyd, founder of the always-on mortgage comparison platform, Dashly.com, said: "Successive governments have talked the talk but very few, if any, have walked the walk when it comes to building homes, which is the easiest way to help more first-time buyers onto the ladder.
"It's a conundrum that no government, incomprehensibly, has been able to crack."
Among the levelling up recommendations, the government announced:
- All homes in the Private Rented Sector will have to meet a minimum standard - the Decent Homes Standard.
- Section 21 ‘no fault’ evictions will further be abolished.
- Consultation on introducing a landlords register.
- £1.5bn Levelling Up Home Building Fund being launched, which will provide loans to small-to-medium-sized enterprises.
- Regeneration areas - the government will support 20 of our towns and city centres, starting off with Wolverhampton and Sheffield, undertaking ambitious, King’s Cross-style regeneration projects.
But director of Benham and Reeves, Marc von Grundherr, commented that the levelling up proposals, against the current economic backdrop, would not automatically boost the housing market.
