According to a recent groundbreaking report by Hometrack many homeowners in Britain will not have a mortgage within 3 years. With few young couples and prospective first time buyers able to take out a mortgage, the profile of homeowners has changed dramatically. Young people who have typically bought with a large mortgage are now forced to rent, or live with their parents. This is because as an example, a property worth £ 400,000 now requires on average mortgage income multiple of 15 times the average full time salary. This of course was the type of lending that got us into trouble in the first place. So what does this actually mean for the housing market? Typically, the price that a vendor can accept is based upon what he/she owes. Now a person who owns a property mortgage-free can accept whatever they want to sell their property and can then attempt to pass the ‘loss’ on to the next property that they are buying. If that property is owned mortgage-free then a similar dynamic applies. What this actually means is that house prices could be forced down even further because people are in essence, cash buyers. The positive side of this is when prices start to reach a level that are affordable ie. not 15 times your salary, first time buyers will be able to re-enter the market and the whole housing cycle will start all over again.
