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Inside edge: John Malone

At a recent high-profile plc&#39s AGM, comment was made by a disgruntled shareholder that junior doctors are unable to compete to buy property in certain areas because they are being priced out of the property market by professional landlords and the high bonus earners of many big corporate employees.

When junior doctors are unable to compete in the property market, then we should all be concerned, bearing in mind the number of lenders likely to take the risk but also the fact that the very high level of borrowing, possibly coupled with other acquired debt through university, etc, is putting an enormous burden on even this category of professionals becoming either first-time or second-time buyers.

Furthermore, the thousands of other essential workers required in any major city such as London are either now travelling three to five hours every day to find something affordable or sharing or staying with parents who in turn are living much longer, thus slowing down inheritance money which has in the past assisted many couples to buy in an area of their choice.

Experience tells us that what happens in London and the South-east is usually mirrored at a later date throughout the country and normally at a lesser level but already some of the experiences in London are being seen in Edinburgh and towns across Northern England.

A recent property report by the Halifax listed 451 towns where buying a home is beyond the reach of one-third of potential FTBs. This report also highlights the North/ South divide, in that prices in Southern England are unaffordable for four-fifths of FTBs on average earnings while the remainder are already affected in the North.

If this is not bad enough, a further study by a leading economist has highlighted that earnings are not rising in line with house prices and that mortgage debt as a percentage of income is higher than in the late 1980s.

The signs are not looking good as estate agents report in many areas across the country that there is a shortage of FTB-type properties further pushing up prices, especially in the South-east, to £250,000-plus which creates further stamp duty costs.

The buy-to-let market was created in the mid-1990s to alleviate the negative equity scenario. Seven years later, it is partially responsible for causing the current market to overheat. Unless an affordable supply of FTB-type properties are available, the property food chain so vital in the process will put pressure on the rest of the property market.

Lenders could play their part and be far more discerning in their underwriting req-uirements coupled with a more restrictive lending approach in the buy-to-let sector.

By reducing the availability of money to either the professional landlord buying up to 30-50 per cent of new FTB-type developments or the novice investor who is buying for other than domestic reasons, additional properties will be available. A further measure could be the introduction of an additional stamp duty payment on all buy-to-let and similar properties held by speculators manipulating the market to inflate the price.

These measures may seem extreme but they would be fairer than interest rate increases that affect not only all owners who want a property for a home but industry and thereafter the employment market. That way, our junior doctors should at least be able to live in an area where they want to work.

John Malone is national mortgage manager at Prudential


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