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Why are Norfolk homes so expensive?

PUBLISHED: 14:55 14 October 2015 | UPDATED: 14:55 14 October 2015

Prime Minister David Cameron wears a hi-vis jacket and hard-hat, with construction workers, as he visits the Linden Homes South West Region Kingsgate new homes development site near Newton Abbot, Devon. PRESS ASSOCIATION Photo. Picture date: Monday October, 12, 2015. Photo credit should read: Ben Birchall/PA Wire

Prime Minister David Cameron wears a hi-vis jacket and hard-hat, with construction workers, as he visits the Linden Homes South West Region Kingsgate new homes development site near Newton Abbot, Devon. PRESS ASSOCIATION Photo. Picture date: Monday October, 12, 2015. Photo credit should read: Ben Birchall/PA Wire

With the average age of the first time buyer now 36-41 years and the average price for a home in Norfolk being more than £180,000, it seems an impossible dream for many to even own their own home. Property editor Caroline Culot spoke to local property professionals and asked them: Why are homes so expensive?

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For many people, the dream is to get on the property ladder, buying a small house or flat first and as you move through life and perhaps start a family, you gradually move to a better area and a bigger home. Margaret Thatcher instilled the idea of home ownership with her right to buy and housing suddenly became more of an investment. But now we have the problem of not enough homes with David Cameron’s pledge to build 200,000 new houses by 2020 and the shift to include starter homes to buy for those under 40 instead of the current affordable housing. But there is a much more basic problem even than that and it’s the fact that houses are so expensive compared with wages which haven’t kept pace with inflation, or risen as much as house prices, post-recession. The young, in particular, find their earning potential and borrowing allowances have been harder hit than most. Meanwhile, the vast majority of new private-sector jobs are in the capital, where house prices are soaring to extreme levels. Let’s look at the basic numbers. The average house price for the UK was £184,682 in August according to the Land Registry. The average UK earner takes home £24,648 gross, including bonuses and therefore can only afford a house worth around £110,000, if you imagine them taking out a mortgage worth 4.5 times their salary. To find a job paying that much and a house that costs that little isn’t easy and it may be they have to pay high rent while even trying to save for a deposit. So how on earth have we got to this problem?

Max Sowerby, from Sowerbys, said: “There are a number of factors which have impacted on the price of housing. Buy to Let has been a phenomenon. At the turn of the millennium, few people had heard of it and even fewer had even contemplated becoming private landlords themselves. Yet by 2007, a full one in five mortgages were being given to buy-to-let investors.

“Ultra low interest rates have had a profoundly distorting impact on the UK housing landscape. Today, almost a third (31%) of households - a record level - own their property outright, helped by record low interest rates that have allowed them to repay their mortgage balances early. At the same time, low interest rates have also sustained very high median average house prices, which are now well over sevem times the gross median salaries in England according to government data. That compares to the pre banking crisis trend of around 4.5 times. As a result, despite ultra low mortgage rates keeping monthly payments low, extremely high house prices represent a barrier to first time buyers.

“Almost a fifth of all households (19%) are now in private rented accommodation - the highest proportion since the 1960’s. It is often about the deposit. Santander claims that the average deposit from their own first time buyers is typically £53,000, which is almost two and a half times the national average salary of 22-29 year olds of £21,609. No wonder that more than half of first time buyers now buy with help from their parents. Without this help it is extremely difficult to buy for youngsters.

“Interestingly, the average renter now spends 41% of their income on housing; Nationwide BS calculates the average homeowner spends 34%. During the 1990’s the average age of a first time buyer was 27 but now it is 37.”

Nick Eley, from Watsons, points out although the average house price is less in Norfolk, a lack of suitable properties for people to buy is directly affecting the market. “Growing demand and dwindling supply is the key reason for the increase in property values and this demand is matched in the rental sector where landlords are selling in the current buoyant market having been in negative equity during the financial crisis. Currently only 5% of the UK’s housing stock is transacted annually.

“According to the Land Registry the average price of a property in Norfolk in August 2015 was £162,747, an increase of nearly £18,500 since August 2013. In comparison, the average house price only gained £2,186 over three years between August 2011 and 13. Not surprisingly 120 Victorian properties are being advertised in a deprived area of Liverpool for £1 have attracted interest from 2,750 applicants!

“Locally we are coming across a reluctance from sellers to market their property having been unable to identify a suitable home to purchase. This is exacerbating the perceived shortage. If everyone in this position marketed their home today there would certainly be some satisfying of demand. Until the availability of properties at least matches the demand it is difficult to see a change in the short term. “

Nick Taylor, of Hadley Taylor, said: “There are many complex reasons why UK house prices have risen to such eye watering levels but the biggest reason by a country mile is that we have over populated this small island and even if David Cameron can build 200,000 new homes every year this will not even keep pace with forecasted population growth. Prices will keep rising in line with this inexorable demand. Having said all this, there has also been a big change in expectations amongst first time buyers. For example, when I bought my first property in 1984 I was very happy with a one bedroom flat. Today, however, first time buyers in Norwich want a thre e bedroom house. This raising of the bar is all very well and good but it does mean that those first purchases are going to be that bit more out of reach.”

Nigel Steele called the ability to buy in the right location with the right finance, a “marvelolous Utopia.” “Sadly this will never be the case but by increasing the number of houses we build the problem can be mitigated slightly. Whilst the average house price in Norfolk is today £200,000, there are houses in parts of the country that can be bought for £50,000. Of course they are in the wrong location. In Norfolk, which is a relatively affluent area, our house prices are still too high for those on average earnings. By building more houses we may see a steadying of price increases but it is only likely to be temporary as we live in a sought after location which will continue to attract people to it.”

Lee Kirby, from Your Move Bennetts, identified ‘landbanking’ as another issue. “This is where builders/developers have land but not the funds to build on them slowing the supply of new homes coming to the market causing a shortage of housing. Builder Tony Abel added to this, saying: “Too many people are chasing too few houses, forcing up prices. The increased demand for homes is being driven by a number of factors: smaller household sizes, people living independently for longer, and a growing population. Against this we have the lack of availability of building land, so we cannot build enough new homes to meet that demand. The result: a mismatch between supply and demand, and upwards pressure on prices.

Another factor is the increased cost of building new homes, thanks to increasingly tight regulation about things such as energy efficiency. This makes building new homes more expensive, which in turn forces up the initial cost. But bear in mind that this is balanced by the fact that such homes are considerably cheaper to run, so there is probably a net gain in the long run. Finally, red tape also forces up the cost of building new homes. Dealing with the many statutory agencies involved – who often contradict each other – is time-consuming and costly.”

From a financial point of view, Keith Hood, from Warners financial services, blamed investors at the bottom end of the market. “ They have been gobbling up two and three bedroom properties, creating a shortage for first time buyers who are left to either fight over the rest, or rent from the investor! The result has been to fuel house prices to a point where many buyers on average Norfolk wages are being priced out of the market. Ironically the cost of borrowing is at a historically low point and has been for some time, so most clients are happy with the cost of borrowing as such, but many simply can’t borrow enough to buy their first home.

“As prices have risen the amount of deposit buyers need has of course increased which has led to the steep rise in the average age of first time buyers. “

What do you think? Email caroline.culot@archant.co.uk

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