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Bizarre but true: more new homes make existing ones less affordable

Bizarre but true: more new homes make existing ones less affordable

An academic study claims that increasing the supply of new-build properties - widely thought to be the favoured solution to the continuing growth in house prices - may make the market increasingly unaffordable. 

A market behaviour study by Dr Alla Koblyakova, of Nottingham Trent University, shows that for every one per cent growth in the supply of new homes, mortgage payment to income ratios in the UK worsen by nine per cent - meaning fewer people can afford a new mortgage.

“The government thinks that by increasing the supply of new homes, the overall cost of owning a property will come down,” says Koblyakova. 

“But this research shows us that the mortgage market behaves differently. When new housing comes on to the market, lenders relax their conditions and lend more money.

And when consumers are more able to buy a property for a higher price, the price of property doesn’t come down” he insists, suggesting that asking prices rise in ‘relaxed’ lending conditions.

“It’s important, therefore, that future affordability programmes focus not only on the supply of affordable housing, but also on the supply of housing finance.”

The study - based on a sample of more than 1,700 mortgage holders between 2010 and 2014 - was taken from a range of sources including the Bank of England, the Land Registry and the European Mortgage Federation.

Koblyakova says house price to income ratio nationally is 4.6 nationally and in Greater London it reaches 8.5 - meanwhile affordable housing is graded as 3.0 or less.

“It’s not possible for government to control house prices. But it is possible for politicians to motivate lenders to offer longer mortgages to reduce the size of monthly mortgage payments. By increasing the duration of a mortgage to 30 years, for instance, it’s possible to make owning a property more affordable for those on average incomes” he says.

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