‘Cauldron of debt’ makes buying a house unaffordable for many


‘Cauldron of debt’ makes buying a house unaffordable for many New research has shown just how unattainable buying a home has become for many people and that the situation is getting worse.

The Government has produced a range of initiatives, such as the Funding for Lending and Help to Buy schemes, to help people get onto the housing ladder, or move home. Whilst these schemes have certainly helped to keep interest rates low and stimulate mortgage activity, critics believe the schemes are doing nothing to increase the supply of housing and are therefore simply inflating property prices.

This would seem to be backed up by research done by Save our Savers, a pressure group set up to support savers and the latest house price figures.

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According to the Halifax and Nationwide, house prices have risen by 7.50% and 8.40% respectively over the past 12 months. Although the Land Registry put the rise significantly lower at 3.20%.

As house prices continue to rise, the Save our Savers research shows that:

  • In the 1990’s the average house price was approximately five times the average salary
  • By 2008 this had doubled to 10 times the average salary
  • The drop in house prices seen after the financial crisis did little make housing more affordable as wages also fell

Commenting on the figures, Simon Rose of Save our Savers said: “As well as too few new homes for a growing population, prices are boosted by low interest rates, encouraging a voracious whirlpool of debt which is sucking life from the economy.”

Low interest rate trap

Save our Savers, argues that low interest rates are doing nothing to help the economy, with lending to businesses down significantly, whilst consumer debt is rising and savers are being hit with below inflation returns.

Simon Rose again: “Those in favour of low interest rates believe they are being socially caring. In fact, low interest rates are trapping people in debt. The Resolution Foundation forecasts that if interest rates rise to 5%, a level often seen in the past, then up to two million households could face “debt peril”, where more than 50% of household income is used to repay debt, by 2018”

“How socially responsible is it to blight the lives of millions of savers and pensioners? Undermining savings, which drive investment, has proven to be a disaster, the magnitude of which has yet to be recognised.”