Homes cost nine times an average salary

Sep 20 2007 by David Bartlett, Liverpool Daily Post

In the fourth part of the Daily Post’s week-long series of special reports, David Bartlett examines how the latest property boom has priced some buyers out of the market

AVERAGE house prices in Merseyside are now almost nine times the typical wage, the Daily Post can reveal.

Wages in the region currently average just over £18,000, while property stands at almost £160,000.

Saving for an average 10% deposit could take more than four years at a rate of £300 a month.

It has led to a lack of first-time buyers which is a major factor in the slowdown gripping the region, economists and estate agents said. They warned the widening affordability gap could contribute to a drop in prices.

Leading Merseyside estate agent Paul Lea of Bradshaw, Farnham, and Lea said: "We opened an office in Heswall in January and we have seen only one first-time buyer through the door."

MORTGAGE adviser James Hutchinson has a stark message for Merseyside’s first time housebuyers.

“Four years ago, somebody coming in with a salary of £20,000 could borrow between £75,000 and £80,000, and there were those properties around.

“Now you need two incomes to get the same property,” he said.

Since 2002, the affordability gap on Merseyside – the gap between wages and the cost of houses – has widened by 56%.

According to figures compiled by the Halifax, the average house price in Merseyside was £87,935 in June, 2002.

At the end of June this year, that figure was £159,848.

Data from The Mersey Partnership, the region’s investment and tourism body, shows the average wage was £15,468 in 2002.

While salaries have risen by 16.5% on average to £18,025, house prices in the region have soared by 82%.

Peter Stoney, honorary senior fellow at Liverpool University’s economics department, said: “The government’s solution is to build thousands of social houses and encourage builders to use cheaper technology to get round the problem.”

While it will help address the problem, its effect has limits, said Mr Stoney.

“Coupled with the interest rate rises there have been, in the short term over the next year or so there will be a stabilisation, if not a gradual reduction, in the average house price.

“There has got to be some sort of ceiling, and the sense we are getting is that it has been reached.”

But he said the conditions that caused a housing crash 17 years ago were not the same today.

“Unemployment is going down, and the situation does not shape up like it did then, when there was a crash and property prices fell by 35%,” he added.

“That scenario does not appear to be in the offing at all.

“None of this is black and white, the factors are all interconnected. We are certainly seeing an increase in people opting to rent.”

Paul Lea of Bradshaw, Farnham, and Lea estate agents which covers the Wirral, said the effect was that first-time buyers were just not coming through.

“We opened an office in Heswall in January, and we have seen only one first-time buyer through the door,” he said.

Liverpool-based estate agent Louis Anastasiou, added: “At the moment, we are very busy on the lettings side because people are struggling to get on the property ladder.

“Prices are still high and if you need shelter the only alternative is to go in to lettings.”

The recent trend in the residential property market has also forced lenders to re-think the way they do business, said Mr Hutchinson, of Mortgage Solutions, who works with Liverpool-based estate agents the Venmore Partnership.

“Lenders these days are not as rigid as they used to be, income multiples are used only as a guide,” he said.

He said there would be cases where someone on a lower wage could borrow more than someone on a higher wage because of factors like not having debt or children.

He said the main factor in affordability terms had been the dramatic way in which prices had risen.

“Deposits are another issue. Many first-time buyers are having to borrow off their family, their mum and dad are helping them out,” he said.

Affordability was starting to become a real issue.

“In the last two weeks, for the first time ever, I have had to say to a couple of people you can’t afford this mortgage.

“It had been agreed but was not affordable.”

He said one problem that he could see cropping up was with people who had taken out 125% mortgages with companies like Northern Rock, among others.

These work by using a combination of traditional mortgage debt with an unsecured loan.

The idea is that in a rising market by the time they come to re-mortgage, the home will be worth more.

However, Mr Hutchinson warned that people could be forced into taking 100% remortgages and could be penalised on the unsecured part with the interest rate going up if it was not consolidated.

He said making repayments had become such an issue for borrowers that about 50% opted for interest only mortgages.

High property prices are not a bad thing in themselves though, and the housing market forms part of the complex UK economy.

“The rapid growth in house prices over the last five years is evidence of a flourishing economy,” said Dave Moorcroft, director of economic development at TMP.

“At the same time, this nationwide trend is making it increasingly difficult for buyers to move up the property ladder, and Merseyside is no exception.

“Merseyside’s average earnings are increasing, but there’s still work to do to boost opportunities for low income areas and accelerate overall growth.

“Projects like the New Heartlands, Housing Market Renewal (HMR), Pathfinder, are pivotal to both improving the supply of affordable housing and the quality of existing property in our most deprived areas.”

New Heartlands focuses on Wirral, Sefton but mainly Liverpool. Broadly the policy is to revitalise areas that have seen the bottom fall out of the market.

It involves a combination of demolishing homes, refurbishing existing ones and building new houses.

At the moment Liverpool council has a policy of prioritising building in HMR areas as a way of improving the overall mix of the whole market.

“The government theory is that if you limit and cap building in non-HMR areas, it means that housing happens in HMR areas,” said Cllr Mike Storey, Liverpool’s executive member for regeneration.

“The evidence broadly is that that’s happening, but the danger is that a developer takes his or her money elsewhere.”

He said there needed to be flexibility in the interpretation of the law.

Affordable housing was needed, particularly for key workers, said Cllr Storey, but it was not the only priority.

“Equally, one of the things that blights Liverpool as a whole is the local tax base.

“We have more Band A and B properties than any other city in the UK.

“Income from council tax is much lower than elsewhere, and it is a problem for us.

“We need to attract more people to live in the city. Linked to that, we want people of affluence and wealth to stay in the city.

“We don’t want people that become affluent to move out of the city to places like Wirral or Sefton, so why should we not have half million pound houses?

“It’s a balancing equation with lots of elements.”

davidbartlett@dailypost.co.uk