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MONEY COMMENT
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The proliferation of property television programmes, stories of buyers queuing for two weeks and the sale of a £125,000 converted broom cupboard may be good anecdotal evidence, but the foundations for tomorrow's property market misery lie in three key statistics: 1. House price to earnings: According to HBOS (LSE: HBOS), the average house was valued at 5.1 times the average salary late last year -- a record and the first time the ratio has risen above 5 since the market's previous peak in 1989. Even so, many mainstream lenders (particularly those with painful memories of the early 1990s crash) remain faithful to the traditional mortgage limit of 3.5 times a single income. That's about the average for the last 20 years, which implies today's market is 40% over-valued. Without a wholesale increase in lending limits -- or a big improvement in pay packets -- prudently borrowed money will be unable to fuel further market rises. No surprise, then, to hear many reports of mortgage lie-to-buy and a surge in self-certificate loans. 2. First-time buyers: The property market requires a constant supply of fresh blood to form all the housing chains and keep the price momentum going. Yet statistics from the Council of Mortgage Lenders indicate just 29% of mortgages in 2003 related to a first-time buyer, the lowest since records began in 1974. Given the toppy valuations, it's no wonder HBOS claimed prices in eight out of ten UK towns were out of reach for first-time buyers in 2003. Though the army of buy-to-let investors is growing, don't expect it to shore up the lower rung of the ladder for the long term. If potential first-time buyers can't borrow enough to buy a home, it's unlikely their rents will be able to support a landlord borrowing to buy it either. 3. Mortgage equity withdrawal: Rising house prices have tempted many homeowners to borrow more and spend. Recent figures from the Bank of England revealed borrowed money secured on housing -- but not spent on housing -- represented a record 7% of national post-tax income in 2003. Such levels of borrowing have occurred only in previous house price bubbles. For the record, this ratio exceeded 6% during the late 1980s boom and hit 0% at the market bottom in 1993. Where next? House Prices, Techs And Bubbles | Seven Signs Of A Housing Crash Maynard, until recently, owned a house.