I have never changed my view that the key to that elusive commodity ‘consumer confidence’ rests largely on rising house prices. Increasing prices and a strong housing market equal consumer confidence – if only for the declining number able to afford to buy their own property in our increasingly dysfunctional and unbalanced property market.
The bad news is that UK consumers are about to have their confidence shaken as the epic housing price boom we have seen over the past decade comes off the rails. The housing market is close to recession, if it is not already in recession, with house prices already diving in central and outer London and parts of the south east.
In a completely unscientific study, I can point to two houses in my own road on the outskirts of west London which have sold in the past two months, one finally selling at 20 per cent below the original asking price and the other 15 per cent below.
More scientifically, both the Halifax and Nationwide house price indexes show annual house price inflation barely keeping up with inflation, with the Nationwide index showing a recent month-on-month fall. I expect both these indexes to start pointing downwards sharply over the next 12 months.
So what’s to blame? Some will blame Brexit uncertainty, which may be temporary, some will blame a bursting bubble, others will just point to an inevitable slowdown in the cycle after years of booming prices. I am inclined to think it is a mixture of all the above.
Both the Halifax and Nationwide house price indexes show annual house price inflation barely keeping up with inflationOne silver lining is that it might reverse the fall in home ownership. The Resolution Foundation highlighted in 2016 that we are becoming divided as a nation between those who inherit wealth and those who do not – much of this, of course, related to property inheritance.
Home ownership, which topped 70 per cent in the early 2000s in most parts of the country, has now slumped to just over 50 per cent. In much of London it will be well below 50 per cent. A shrinking number of people have the ability to pass on a valuable home to their descendants. The cascading down of wealth may be under threat.
In a more recent report, the Foundation said that today’s families were headed by 30 year olds only half as likely to own their home as the baby-boomer generation was at the same age.
The report – Home Affront: Housing Across the Generations – also found that households headed by millennials were more likely than previous generations to be living in overcrowded housing. While the average family spent just 6 per cent of their income on housing costs in the early 1960s, this has trebled to 18 per cent. I have seen reports on some renters paying as much as 30 per cent to 40 per cent of their income in housing costs in London.
We have a generation of young people growing up with uncertain job prospects, saddled with university debt and living in poorer conditions than their parents at the same age. Many see owning a home, once a natural ambition for most people, as a fantasy.
That is not progress in my book and it is not good for national wellbeing and ultimately the wealth management sector. A poorer population has less to save in pensions, Isas and the like and less money to pay adviser’s fees because too much income is being gobbled up by rent and mortgage costs.
I do not have space here to look at the solutions; I am sure you have your own. Things must change but the financial advisory sector has at least a part to play.
Too often I have heard financial planners, wealth managers and IFAs tell me that they prefer not to get involved in mortgage advice. I know some see it as “too downmarket”, the province of the banks and building societies.
This is missing a trick. For many young people buying a home, or saving for one, is one of the first major financial transactions they will make and if IFAs are missing from that process that is a loss all round.
With this in mind, I was pleased to see recently that the Openwork advice network is to offer its hundreds of mortgage advisers support to become fully-fledged financial planners, bridging the gap between mortgage and more holistic financial advice.
I have always felt that mortgage advice should not be separate from independent financial advice so this is a step forward. The division between qualified mortgage advisers and more general financial advisers is artificial and frankly dated.
There is a great deal of pent-up demand from frustrated young homeowners who would love to get on the housing ladder but what’s missing from their plans is sound financial advice.
Kevin O’Donnell is a financial writer and journalist
