Housing and Finance in the UK

The divide between house prices in north and south has increased in the past 12 months, reversing the previous trends of a narrowing of the gap.

According to a survey by the Nationwide, house prices in areas like Manchester and Liverpool have started to stagnate. House prices in London and the South East have continue to rise.

House prices in London are now nearly 120% the average in the north. Average house prices in London are now over £300,000. In Yorkshire House prices are only £155,000. However, even within these regions house prices can fluctuate between different areas.

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The recent floods in England have been the worst in living memory. Last month, the worst effected areas have been in South Yorkshire and Hull. More recently the floods have hit the south West. Towns near the River Severn, such as Gloucester, Tewkesbury and Cheltenham have also seen devastating floods. Rising river levels along the Thames have also caused flood waters in towns such as Oxford, Abingdon and Reading.
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With average UK house prices approaching £200,000 many first time buyers despair of every getting on the property ladder. Also, there seems little scope for making future capital gains. However, if we look around we become aware that house prices can fluctuate significantly for the sake of only a few miles. The Independent recently identified some towns which offer excellent value for money. If you are determined to buy your first house, look into whether you can move to these towns. There is likely to be real scope for property growth as well.

Cheap House Prices 

• Aylesbury: A starter flat can be bought for £137,000. Aylesbury is close to both Oxford, Birmingham and London.  Both London and Birmingham are about a 1 hour train journey. Population 70,000.
• Basingstoke: flats from £142,000 close to M3. Only 45 mins from London. population 85,000
• Glocester: Terraced houses from £140,000. Boosts low unemployment, 2 Harry Potter films. close to Cotswolds and is one of the most attractive towns in central England.
• Bridlington: Larger Family houses from £128,000. This combines an attractive seaside location with great affordability. Busy in summer, but, without the crowds of Blackpool. Great potential for house price growth.

Related News:
Thanks to Sagar for featuring UK House prices in his home onwers blog carnival

References for article: low down on UK’s cheapest house price locations at Independent

Rising house prices have given tremendous joy to a generation of home owners. Those who bought house prices back in the 1970s have seen their investment rise faster than inflation, earnings, the stock market and most people’s wildest expectations. (253% increase since 1993) [i]

These rise in house prices have given significant benefits to this generation of home owners.

1. Scope for equity withdrawal and increased consumer spending.
2. Wealth gains which can be used for retirement savings.
3. Higher consumer confidence
4. Insulated from rising interest rates

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When we wish increase our financial well being, should we be trying to increase our income or wealth?
Income is the monthly or weekly flow that we can actually spend. This is what directly affects our living standards. Wealth is our value of assets; to some extent, they can be used to generate income. However, mostly our wealth is tied up and it is difficult to extract money.

The Myth of Housing Wealth.

In the UK, one of the most popular topics at the dinner table is House Prices. Those who own houses, get great delight in talking about how much their house prices have increased. However, even though house prices in the UK have doubled in the past 7 years, people certainly don’t feel twice as better off. True, it is possible to remortgage and take equity withdrawal, but for most people rising house prices don’t help much. You could sell the house, but it is just as expensive to buy somewhere else.

The Benefits of downsizing in House Value.

For most people it is difficult to realise the monetary value of a house into their day to day living. Choosing to live in a less expensive house could improve your monthly disposable income very significantly. For example, if you downsize from a £200,000 house to a £180,000 house, your mortgage can be reduced by £20,000. At 6% interest, this will save you £121 a month on a 30 year mortgage term.

If you are a single person living alone, is it necessary to have a 4 bedroomed house? True, you lose some value of your assets, but you will not notice this. However, the extra £121 a month will make a big difference to your standard of living. Admittedly, there are various costs in moving house. But, the important thing is that when buying a house, don’t necessarily buy the most expensive you can. In the past, housing has been a good investment (may not be in the future short term) but if you buy the biggest house you can, you will suffer with high mortgage payments for 30 years. Choose the right house and you can make significant savings.

Other Posts 

Another way to reduce mortgage payments is to extend your mortgage term. See: Why I extended my mortgage term  to 47 years.

6 ways to get rich at  Money Walks, this weeks host for Festival of Frugality

There is an ancient Indian tradition that if you see a penny on the floor you should pick it up and offer thanks to Lakshmi, the Goddess of prosperity. If we value even a penny it is said that Lakshmi will reciprocate our care and bless us with financial prosperity.

We may not believe in Indian Goddesses, but we can understand the principle. Do we place a value on attracting prosperity? What are our perceptions about wealth and attraction.

How to attract More money into our life? Do we believe in scarcity or abundance? If we believe in abundance it is easier to attract money. If we believe in scarcity then our financial state will quite often be a reflection of our attitude.

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Gordon Brown promises 3 million New Homes will be built by 2020. At the moment the UK has one of the lowest house building rates since the second world war. To increase the rate by 40,000 a year may cost the Chancellor upto £10 billion in social housing costs.

The increase in housing supply is in response to the concerns over difficulties facing the younger generation in getting a foot on the property ladder. The tripling of house prices in the past 12 years, is in large part, due to a chronic shortage of supply.

However, although he has promised an extra 3 million homes building them may not be so easy. Often local councils are keen to protect greenbelt land and avoid extra environmental pollution.

In other news the US dollar fell again in response to concerns over the US housing market. Falling house prices were now feeding through into lower consumer spending. Their are fears that this will soon pass onto Wall Street. Despite a massive increase in home repossesions and mortgage defaults, there is no sign that the Federal reserve are looking to cut interest rates at the moment.

Dollar falls again - Guardian

The new UK Prime Minister Gordon Brown has pledged that increasing the amount of affordable housing will be a prime target of the UK government.

Affordable housing has become an important political issue, in recent years. It stems from the rapid rise in house prices, making it increasingly difficult for first time buyers to get on the property ladder. Affordable housing is often targetted at certain key workers in the public sector. However, there are concerns that some low paid workers, not in these key public sectors will loose out.

Difficulties in making affordable Housing a reality

Many ministers and politicians have agreed on the importance of more affordable housing; however, to make this a reality is not as easy as they would like us to believe.

1. Local Authorities.

Planning permission for most housing plans are still under the discretion of local authorities. Therefore, they are in a position to block new housing schemes.

2. Scale of the problem.

At the moment new housing is been built on a small scale.  To adress the balance it will require a huge investment in building new housing

3. Difficulty of finding space in the South of England

There is already a shortage of land in certain areas. It is not easy to find land in the south of England that is OK to build on.

4. Time Delays

The process of applying for planning permission, getting it approved and then building houses is very time consuming. The government may need to find a new procedure to cut red tape

Understanding the affordable housing situation in the UK at BBC

1. Reduce Heating and Air Conditioning.

Heating and air conditioning can be a big cost of running a house. Changing the thermometer by 1 or 2 degrees can make a big impact on fuel bills. As well as reducing the temperature you should also look at changing the timer. For example, make sure the A/C gets turned off when you go out of the house. If you are in the habit of forgetting invest in a good timer.

2. Investing in Low energy appliances.

Make an effort to choose appliances that use low amounts of energy. A good example of such an energy saving technology is new low energy lightbulbs. The can use upto a fifth less energy than standard light bulbs. Although they may be more expensive to buy, they will pay for themselves over the course of their extended life period. Also look out for special offers which offer discounted prices of these devices. Governments are increasingly looking to encourage the use of greater energy efficiency.

3. Switch to paperless billing.

Many companies now offer small discounts for receiving bills online and not in paper form. Although the discounts are relatively small, there is an additional advantage of less paper to file.

4. Search cheapest home insurance quote each year.

Even if one company is the cheapest one year it doesn’t mean it will always remain the cheapest company. The home insurance market is relatively competitive, but firms often take advantage of buyer lethargy. I.e. in other words insurance companies can charge higher prices to existing customers. Therefore, don’t loose out on potential savings on big insurance premiums.

5. Be Careful with Appliances.

Many household appliances can be used carefully to enable lower energy consumption, without loss of performance. For example, if you are making a cup of tea only boil enough water necessary. Quite often, people boil a full kettle it not only takes longer to boil, it also costs more money.

Buying a house on a credit card may sound a ridiculous idea, but to some extent, this is what I ended up doing myself.

Actually what happened, is that in the process of buying a house my credit card debt went from 0 to £4,000 and this enable me to pay all the various extra costs associated with buying a house. I didn’t intend to buy a house on a credit card, but the extra £4,000 proved very useful in maintaining a reasonable cashflow during this expensive process.

Is it a good idea using credit card to buy a small part of a House?

It depends. In my situation it worked out OK. This was mainly because:

1. I borrowed at introductory rates of 0%. After 3 years I still have the same £4,000 debt. However, I just haven’t paid any interest on the debt. At the end of the introductory period I simply move the balance to another credit card. Therefore, it has been cheaper to borrow this £4,000 debt on a credit card than a mortgage.

2. It requires a good credit history. If you don’t have a good credit history it might not be possible to keep getting new credit cards every 6-9 months.

3. If you have a large credit card debt before you apply for a mortgage it will reduce the amount the bank is willing to lend as a mortgage.

4. It is risky if you are unable to switch the balance to a new lower rate. Because you could end up facing a rate of 17%

5. It is another monthly payment to make on top of you mortgage payment.

After 3 years I have been fortunate in that the house has increased in value. Therefore, I would be able to remortgage and get a bigger mortgage. This would enable me to pay off the credit card. However, as long as I can benefit from this balance being paid at 0% I shall continue to keep the debt on a credit card. I pay the monthly balance through direct debit to make sure I don’t miss any payments.