Sorry, kids: house prices aren’t going to stop going through the roof

HSBC analysis gives a good half-dozen reasons why buying a house will not get easier for years – which is very bad news for most British youngsters

Anyone hoping for a property crash is going to be sorely disappointed. The main element of Rishi Sunak’s stamp duty giveaway may now be in the past and the Delta strain of the virus still ever-present, undermining consumer confidence, yet all the elements are in place for prices to continue moving up.

Without the market having much time to catch its breath, the 7% to 8% increases of the past year will only moderate as the mania for property as an investment marches onwards.

The next decade looks secure for those who venture into property ownership, be they first-time buyers, those wanting to swap a city-centre flat for somewhere more spacious in the suburbs or, more likely, over-55s who fancy adding to the family home with either a holiday bolthole or a mini rental empire.

Analysts at HSBC have such a long list of reasons for a prolonged period of property price growth there is barely space here to discuss them all.

They say the strength of the UK’s jobs market, which was subsidised through the pandemic and is predicted by the Bank of England to emerge largely unscathed in the autumn once the support is lifted, will mean that incomes remain robust for the majority of workers and stellar for those whose skills are in short supply.

Pent-up savings are another driving force. The Bank says £250bn is stored up in deposit accounts waiting to be spent. There are differing views on how quickly consumers intend to blow the cash, but it is likely most of it will be injected back into the economy over the next three years – and much of it on property.

We know this because there is a precedent. When the banks were forced to repay £50bn of payment protection insurance after the industry was discovered in 2003 to have been ripping off customers, most of the windfall was spent on conservatories, loft conversions, kitchens, bathrooms and spruced-up gardens. There was very little evidence that successful claimants drank their winnings.

The race for space is another factor increasing the demand for homes. This trend has been discussed exhaustively in the property pages of national newspapers over the past few years, mainly through interviews with professionals considering a future beyond normal commuting distance from the office.

Why not be based near the sea or in a pretty market town, as long as it has decent broadband, they ask themselves. Labour’s leader, Keir Starmer, gave his backing last week to workers who are reluctant to return full-time to the office, though he probably had in mind those who fear for their health rather than those in search of a better lifestyle.

Borrowing is also cheap. The Bank’s latest credit conditions survey, which is based on a questionnaire to banks about their lending intentions, found that they planned to offer even cheaper mortgages going into the autumn. This also affects the high loan-to-value mortgages offered to first-time buyers.

Some commentators have speculated that the bounceback from last year’s recession – the worst in 300 years – will be so strong the Bank will have to calm things by raising interest rates as early as next year.

Nothing strikes fear into the hearts of investors more than needing to pay more for their borrowings. They also fear, understandably, a broader crisis triggered by firms with high levels of debt going bust and the buoyant jobs scene turning sour. It is a fear shared by officials in Threadneedle Street – and prevents them from increasing interest rates before the economy is secure.

The property market is so strong that even though next month’s reduction of the stamp duty threshold from £250,000 to £125,000 will hurt the finances of many buyers – now that the average UK home costs £255,000 – no one in the industry expects it will alter behaviour.

At the most basic level there is too much cash chasing too few properties in popular places across the UK.

Moreover, says HSBC, we are seeing the emergence of another element of support for prices: and that it is the return of buy-to-let.

The only one of George Osborne’s actions to benefit the long-term economic prospects of the UK was to tax buy-to-letters much more heavily and end the mania of amateur landlords buying up large parts of Britain. He effectively reduced investment returns, and many landlords sold up. Now a recovery in private tenant demand and even lower returns from other assets has pushed the buy-to-let mortgage market back to where it was before Osborne’s reforms.

It all spells gloom for the young on average wages. It looks like they will have to wait at least a decade for the market to turn.

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