The UK housing market experienced a decrease in value last year, shedding around £27 billion across the nation. This decline, spurred by rising mortgage costs and increased financial strain on households, marks the first of its kind since 2012. However, despite this setback, the housing market has shown remarkable resilience, maintaining a substantial overall value increase compared to pre-pandemic times.
A Closer Look at the Numbers
The total value of all residential properties in the UK now stands at an impressive £8.678 trillion, according to property experts at Savills. This figure, despite last year’s downturn, is still a whopping £1.585 trillion higher than it was back in 2019, before the global pandemic took its toll on economies worldwide.
Lucian Cook, the head of residential research at Savills, commented, “Despite higher mortgage costs, the market’s resilience means UK housing continues to be a significant, and a relatively secure, store of wealth. Even after deducting outstanding mortgage debt of £1.652 trillion, our figures show that net housing wealth continued to exceed £7 trillion; a figure 2.6 times the size of the UK’s economy. In 2023 the total value was supported by an £80 billion uplift from new housing delivery. But, more fundamentally, the market was insulated from interest rate pressures by a combination of more stringent mortgage regulation, the increased use of fixed rate mortgages and the assistance provided by lenders to those in financial difficulty. We may see the cost of mortgages ebb and flow over the course of 2024, as markets respond to changing expectations of when and how much the Bank of England will cut the base rate. But over the medium term we expect affordability pressure to ease, meaning that the recent loss in value should be short lived.”
Factors Influencing the Market
The decline in housing values last year can be attributed to a combination of factors, including the surge in mortgage costs. However, the market has been somewhat shielded from the full impact of interest rate hikes thanks to stricter mortgage regulations, the prevalent use of fixed-rate mortgages, and lenders stepping in to assist those in financial distress.
Interestingly, the total value of the housing stock received a boost from an £80 billion increase due to new housing developments. This addition has been crucial in keeping the market relatively insulated from external pressures.
Regional Variations
The dip in housing values was not uniformly distributed across the UK. Southern England bore the brunt of the decline, while other regions, such as Scotland, Northern Ireland, northern England, and the Midlands, saw increases in property values.
This geographic redistribution of housing market strength is part of a continuing trend, with regions where homeowners need to borrow less money showing more robustness. This is indicative of a broader shift towards a more balanced housing market across the UK.
The Winners and Losers
Owner-occupiers who own their homes outright have emerged as the primary beneficiaries of the market’s overall value growth. These homeowners now represent almost 40% of the total value of all UK housing. Over the past decade, the value of properties owned outright has surged by £1.505 trillion, while the value of homes owned with mortgages has also seen a significant increase.
The disparity between mortgaged and unmortgaged property values reflects broader demographic shifts and changes in homeownership accessibility over the last ten years. The recent period has seen individuals who benefited from the late 20th-century homeownership boom increasingly joining the ranks of those without mortgages. Conversely, aspiring homeowners have faced challenges such as high deposit requirements and climbing mortgage costs.
Looking Ahead
Despite the hurdles of the past year, the outlook for the UK housing market remains optimistic. Experts predict that mortgage costs may fluctuate in 2024, but the medium-term prospects suggest easing affordability pressures. This indicates that the recent loss in value could be a temporary blip rather than a long-term trend.
The resilience of the UK housing market, backed by robust regulatory frameworks and continuous growth in housing supply, suggests that it will continue to be a cornerstone of wealth for many in the country. As the market adjusts and evolves, the dream of homeownership and the benefits of property investment remain alive and well in the UK.