Housing Minister Grant Shapps is reported as warning that as the pace of price gains slows, homeowners should not count on making money from their property. "Gone are the days where you buy a house for capital appreciationâ¦..House prices can still go up, but they need to go up in line with or less than increases in average earnings for the long term."
According to Nationwide Building Society, on average house prices rose 147 percent from 2000 to the market's peak in October 2007. This was 11 times faster than consumer-price inflation of 13.2 percent. Values then slumped 21 percent through February 2009, though they've since increased 12 percent. Unfortunately, Halifax recently reported that U.K. house prices fell for the first time in four months in August as the public grew more pessimistic about the economy.
According to Savills Plc, a shortage of homes, which may reach 1 million by 2015, is helping to support prices, record-low Bank of England interest rates have also bolstered demand, and prices.
The government is trying to address the shortage by freeing up public land, offering municipalities incentives to approve more housing plans and encouraging banks to increase lending to prospective buyers.
According to the Department of Communities and Local Government, the number of homes built in England and Wales last year was the lowest during peacetime since 1924.
However, "People can't afford to buy the product because they can't get the mortgages," Shapps said. "They can't get the mortgages because the multipliers are so high for how much they require compared with their salary."