Criteria could loosen sooner than you think

John Phillips is financial services director at Kinleigh Folkard & Hayward


There are plenty of positive headlines in the news about the return of growth to the UK economy and even enough good house price data to spark talk of a bubble and imminent correction.

At the front-line it is fair to say that we are seeing greater levels of confidence, with all measures pointing in the right direction.

The missing piece however is any significant improvement in household real incomes.

In the South East, and specifically London, we have grown accustomed to foreign purchasers, cash or otherwise, keeping prices inflated. But property is illiquid, and as they look further afield of central London, they cannot be relied upon to fuel the market recovery forever.

In the UK, flexible working conditions and a downward movement in real wages  has shielded many from possible unemployment, but it will likely delay prospective borrowers with limited income growth and higher core inflation costs from accessing mortgage finance.

With wages growing at around 1.5% a year and underlying inflation of 2.5%, the real wages of those in work continue to fall.

If, as we expect, the stronger economic picture and various government housing support measures push up house price inflation over the next few years, we may see prices running ahead of the mass market for some time.

Certainly, in transaction terms, the market is way below its pre-crash height of 2007.

At some point the thorny issue of affordability will come to the fore again.

History suggests that we will loosen criteria to deal with it.

And that moment may well be with us sooner than we think.