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00:08 I would say we are at the limit of the house price to income ratios that people can afford.
00:14 At the moment, what we've seen in the last couple of years is that interest rates have been really, really low.
00:21 So the cost of borrowing for your mortgage has been really cheap.
00:25 And a lot of people fixed on interest rates that were sort of between 1 and 3%, let's say,
00:32 the majority of people who've had a fix in the last five years.
00:35 Now, those interest rates are going up, so the cost of servicing that mortgage is increasing.
00:41 It also means that when people go to buy a new home or to switch their homes,
00:48 the cost of servicing that loan has now gone up.
00:51 So their purchasing power has fallen.
00:53 They will no longer be willing to pay as much for the house as they were before
00:58 because the cost of repayment on that mortgage has changed.
01:01 That's the market correcting.
01:03 It's people saying, "I can no longer afford that much money for that house."
01:07 We hear this terminology, "house price correction," but is that not a crash?
01:13 When, I think, in the last sort of couple of decades, when we've looked at buying a house,
01:17 the expectation is that house prices will probably continue to increase.
01:23 So this is a relatively safe investment because I know that, in general, house prices continue to go up.
01:31 I'm highly unlikely to experience a massive house price crash.
01:34 If I did, the interest rates are low all as well.
01:37 I think we're now in a situation where that is no longer looking as rosy,
01:41 and that's really, really difficult.
01:43 Because we've never had house prices this high in relation to wages and interest rates this high.
01:51 So what we're looking at is sort of a first.
01:53 We've had house price crashes, downturns, corrections before.
01:58 We've had high inflation before, and we've had high interest rates before.
02:01 But what we've never had is people borrowing this much in relation to what they earn,
02:07 and historically high house prices.
02:09 At the end of 2022, house prices had never been so high.
02:14 100%.
02:14 Why is that bad, though?
02:17 Because some people think it's great that house prices are so high.
02:20 Yeah, look, we're all making money.
02:22 It's fine.
02:22 We're not.
02:23 We're all going to lose loads of money.
02:24 Until it falls.
02:25 So yeah, so I think going back to who is experiencing what in this situation as well,
02:29 I think you've got your recent first-time buyers who have bought, let's say,
02:33 in the last five to ten years that have bought when house prices are really, really high.
02:38 Highly likely that you don't have a huge amount of equity in the property
02:42 because deposits have to be small when house prices are so big
02:46 because how could you possibly afford more than a 20% deposit on a flat in London?
02:51 You've got people who have potentially owned their home for a much longer period of time.
02:58 Perhaps they own, I don't know, let's say more than half of that outright.
03:02 It's highly unlikely that they would be falling into negative equity at the moment.
03:06 It also depends if you are going to keep your home.
03:12 So if you are staying in your home, your mortgage repayments may rise,
03:17 but you're not looking to sell it.
03:18 So the negative equity point might become a little bit less important
03:22 because you're planning on staying it for the next 10 to 20 years.
03:25 And again, house prices after a correction will probably rise again.
03:29 You'll probably find that that sort of all balances out.
03:31 Probably, but not definitely.
03:33 Definitely.
03:33 Definitely.
03:35 That is true.
03:36 Yes, exactly.
03:37 And I think this is the tricky thing.
03:38 We can't just expect that house prices will continue to rise.
03:41 Because that's something that I'm hearing a lot, which is,
03:43 "Oh, but it will be fine because house prices will go back up."
03:45 Because that's what they always do.
03:47 And it's true.
03:48 If you look at a graph of house prices over the last 200 years, they go like this.
03:53 But the general trend is up.
03:55 But have we stretched that elastic relationship
04:00 between how high house prices can go and what people earn to its limit?
04:06 Already, I think what we're seeing is you can't buy
04:09 your first home without family support.
04:12 It is near impossible, particularly in expensive cities.
04:15 Because quite frankly, wages just aren't enough.
04:18 Particularly if you're already paying rent,
04:21 which is taking up a significant proportion of your income.
04:24 How do you save for a deposit?
04:25 I would say we are at the limit of the house price to income ratios that people can afford.
04:30 During the pandemic, house prices rose significantly.
04:34 We saw a sort of double-digit house price growth.
04:37 Faster than they ever had.
04:39 Exactly.
04:40 What we're seeing now is probably a correction of the last couple of years coming into play.
04:45 So house prices, even if they've fallen slightly at the moment,
04:50 even if they fell a bit further,
04:51 they still probably wouldn't be lower than where we were sort of pre-pandemic.
04:57 However, that impacts those significantly who bought in the last few years.
05:02 And it will depend where you are in the country.
05:04 London and the southeast, house prices were particularly high.
05:08 In other areas, that's true too.
05:09 But there will be regional differences.
05:12 Do you think we should be worried about the housing market?
05:15 I think we should be worried about the housing market,
05:17 but for a range of reasons that aren't just on what house prices are.
05:21 How can we make sure that mortgage holders don't lose their homes?
05:24 Now, that is a really, really important question.
05:27 Because if you've come off a fixed rate recently,
05:30 and you've had to refix your mortgage,
05:32 it's highly likely you are paying hundreds of pounds more per month, if not thousands.
05:37 On additional costs for your mortgage.
05:40 Now, I'm going to quote your own figure back at you, 700,000 people already struggling.
05:46 Yeah, and that's 700,000 households on low incomes.
05:49 So many more than that.
05:52 So at the Joseph Rowntree Foundation, where I work,
05:54 we primarily look at those on low incomes.
05:56 And I think there is a really, really big difference about whether or not someone
06:01 or a household who has a really, really high income
06:03 and have savings to fall back on can afford this change in circumstance with their housing costs,
06:09 compared to those who are already struggling to meet their mortgage costs.
06:13 If those go up, you know, by hundreds of pounds a month,
06:15 there aren't hundreds of pounds available to be repaying that.
06:19 So that becomes a real question about how do we best support those households to keep their homes?
06:25 What I would also say is, this same conversation hasn't been happening for renters.
06:29 [BLANK_AUDIO]