Whilst the economy continue to steam ahead in recovery, there remains one area of concern that if not addressed soon could derail the UK economy and it’s surprisingly strong recovery.

Massive Price Disparity

It’s only bricks and mortar, yet in varying places in the UK, it is worth far more than in other places. Lets do some figures (these are according to Zoopla):

National average price: £256,021 – up £9486 on 12 months ago. 3.85% increase

Average property price in West Yorkshire: £160,245 – up £1616 on 12 months ago. 1.02% increase

Average property price in London: £567,392 – up £43,230 on 12 months ago. 8.25% increase

The story in West Yorkshire reflects much of the Northern half of the UK. House prices are only very slowly creeping up, if any at all. Prices are incredibly stagnant. But as we are all probably aware, it is the overheating prices in London and the South East which are pushing the national average up.

Wealthy investors, many from outside the UK, have been snapping up property in our capital as an investment, rather than making it their home. Which is fine, and legally they are allowed to do so. But it is pushing prices up higher and higher each month. It’s clearly overheating.

Some anecdotal stuff now. I have recently signed up a customer who has a business selling property. They were telling me that a parking space for an apartment in Mayfair sold for a cool £250k! That is a car parking space worth WAY more than the average price of a home in West Yorkshire. Anyone else think that this is getting ridiculous now?

Here’s some more eye watering facts about property prices in London:

Average asking price for a detached property in London: £1,011,883

Average asking price for rent per calendar month: £2788

Complete Collapse

Market people and financially orientated people will call it an “adjustment”, in reality, an adjustment will be more likely a massive slide in prices. The reason? A tipping point beyond what people can afford and the number of affordable homes available to buy.

The longer house prices are artificially forced up, the harder it is for potential first time buyers to actually make it on to the housing ladder. It is important to bear in mind that wages are only creeping up. It is housing prices in certain areas, mostly in the South, which are running away from reason. We were lucky when we moved at the end of 2013. I don’t think we could have timed it any better. However I fear for my brother who before long will also be looking to get on to the housing ladder. Mortgage rules have tightened big time recently. Add that to slowly rising prices, it won’t be as easy for him.

But for those not as well paid, or without a big deposit, struggling in the renting cycle or still living with mum and dad in the south, this is where I fear the most. There is potentially a whole generation of young people who may be lost and resigned to living at home for a long time. This will have a very negative impact on the economy.

What is worse however, is the the Government is now actually building less houses than ever before. Despite David Cameron promising to increase new-builds, a leaked report to the BBC yesterday from DCLG is due to say that the UK is now actually building 4% LESS new homes than last year! This is disastrous news.

So the situation is this: house prices rising too fast – wages not rising fast enough – not enough homes being built. Why does this matter to us? Well, the UK property market has a massive overall effect on the wider economy and if we see a significant adjustment in house prices and they suddenly drop and interest rates rise, this is going to put millions of families under a lot of sudden financial pressure. I don’t need to explain why that is a bad thing.

A number of things need to happen then to make sure that our housing market cools off, steadies and risk reduces:

  1. Build more affordable home at a much faster rate
  2. Implement measures to slow down and possibly reduce hugely over-inflated prices in London and the South East
  3. Ensure interest rates rise slowly over the next decade
  4. Wages need to increase at the same rate as inflation, if not higher

It’s not an easy thing sometimes to control the housing market. It’s a massive cog in the economic machine, which is sometimes influenced by factors outside of our control. But if we fail to rectify the problems now, the impact of a sudden market shift might be profound, and not in a good way.