The latest gloomy assessments of the property market will prove uncomfortable reading for anyone about to exchange contracts on a home in the South-east of England. Their new home is likely to cost almost five times more than they earn and they may be buying at the peak of a market destined to collapse. As Britain's mortgage lenders yesterday reported borrowing for April at a record high of £12.6bn, the apocalyptic forecast by the independent think tank Cambridge Econometrics (CE) warned that prices in the country's most densely populated region are not sustainable.The survey examined the relationship of house prices to household income in different parts of the country In London, it warned, the gap is dangerously wide. Prices are currently 4.8 times the average income, compared with an average of 3.8 over the period from 1974 to 2000. In the South-east as a whole, the current average is 4, compared with an historic average of 3.7. These are levels not seen since the overheated market of 1988 and 1989."We have never experienced these comfortably in the past and we are simply asking whether the debt can continue to be supported," said Saxon Brettell, a director of CE.
"Sentiment is crucial, and if things go awry prices can fall just as quickly as they rose."But while this may give pause for thought to those contemplating a move, or struggling to make their mortgage repayments, massive regional variations still exist. The prices of homes in Yorkshire, Humberside and the North-east bear a far closer relationship to the incomes of those who are buying them.The property crash of the late 1980s still casts a shadow over the property-owning public, but other than acting as a reminder of where rash over-borrowing can lead, the conditions in 2001 could not be more different. Yolande Barnes, director of FPDSavills Research, says that what must be taken into account is the escalating value of equity used in the purchase of homes. She said: "Only one third of the value of British housing is mortgaged.
The ability to purchase a house is not determined so much by income nowadays as by how much cash you put down from your previous house, inheritance, investments, saving and bonuses."In London, in particular, the amounts of cash used in purchases means that the value of houses rise in advance of incomes. "This is not necessarily unsustainable provided the next tranche of buyers have equally large amounts of equity available. But even without the use of cash, a low inflation, low interest rate environment means that even to a mortgage borrower, high prices are more affordable now than cheaper prices were when there was a higher interest rate," says Ms Barnes.In the 1970s and 1980s, mortgage borrowing was a crucial component and there were larger numbers of first-time buyers in the market. When the then Chancellor of the Exchequer, Nigel Lawson, gave his three-month warning in 1987 that he would end the tax relief available to people sharing ownership of a property, this was the sector that rushed to buy.
