GUEST COMMENT: Don't even think about buying anywhere in London now, unless you want to work here forever
If you're a banker based in London, you may be tempted to buy a house. I was. Don't be.
UK house prices have got a lot further fall.
According to the Nationwide index, there's been a 15% correction seen in real house prices, taking them back to 2002/03 levels. Is this enough of a drop? No. House prices in 2003 were already benefiting from a sustained period of growth since 1995 - a full eight years of above-inflation rises.
House prices are currently around 5.4 times earnings, whereas long-term averages are around 4 times. And over the past ten years, the average earnings calculation has been skewed by a small band of mega-earning hedge fund millionaires. When they're excluded, decent family houses are out of reach of most people.
In future, house prices will be forced further down by tax rises. You can also throw into the mix pay freezes, slow economic growth, huge public sector unemployment and sluggish returns from investments. And to top it all off, instead of a 10% deposit, now you need to pull together 25%... How on earth is anyone ever going to buy a house?
At some point, something has to give. Demand will fall, and supply will increase. The UK housing stock is currently restricted by an arcane and prohibitive planning system, which will be relaxed as things worsen. Get ready for modern mixed-use developments and affordable housing complexes. In an instant, the balance shifts. Suddenly the supply is freely available to meet the demand, and order is restored to the chaos. Property prices in the UK fall. And fall. And fall.
Maybe this is good. I, for one, have worked 23 hour days and earn a decent salary. I would very much like to own a garden someday soon - nothing fancy, just a simple rectangle of grass where perhaps I could own some chairs and a table.
On the other hand, falling house prices risk locking me into the City job market for a long time. I could always rent my flat out, but what if the rent doesn't cover the mortgage? Negative equity isn't a great foundation for a move to Asia.
