The National House Building Council announced that the number of new build houses built in the UK between from the month of March to May rose by 4% year on year (2013-2014). Within these three months, there was a total of 37,975 new houses registered. If we annualise this i.e, multiply by 4 to give us an estimate for the year, just over 150,000 homes are being built annually. This is just over half the amount of houses the Future Homes Commission recommended the UK would need to build each year to keep up with household and population growth, not to mention the vast interest from foreign investors in the UK’s thriving capital, London. The current demand is estimated to be almost double the supply, there is no doubt prices will continue to rise for the foreseeable future. The Bank of England announced a cap on mortgage lending last week in an attempt to normalise the housing market. The Financial Policy Committee (FPC) have announced that no more than 15% of any financial institutions (bank/building society) new house purchase lending can be at a Loan to Income (LTI) of 4.5 or more.
Loan to Income example
John earns 55k and Tina earns 45k. Together they want to buy a house. A loan to income of 4.5 essentially means they borrowed 4.5*(45k + 55k) = 4.5*(100k) = 450,000
Institutions have been lending at higher LTI ratios primarily due to a combination of slow living wage growth in the UK and an increase in property prices due to demand outweighing supply and overseas cash buyers.
In my opinion, I don’t believe this will solve the problem. If anything, it will price out more domestic first time buyers out of the market with more power given to foreign investors to continue to drive up prices and make becoming a homeowner an ‘elite’ privilege in the nearer future.