In recent times, there’s been a wave of bleak forecasts suggesting UK house prices would plummet drastically—by 10% to 20%. However, the reality has been quite the opposite. According to the Office for National Statistics, there’s been a slight annual uptick in property values by 0.2% as of August. This increment brings the average UK house price close to its peak of £291,899 from November of the previous year. Notably, Scottish house prices have soared to new heights, setting a record at £309,616 in August, eclipsing the prior record by £13,000 set earlier in February. The Telegraph looked at why the expected crash has not materialised.
London’s Market: A Closer Look
London’s housing market, known for its exorbitant prices, has also shown signs of recovery. The average house price in London is currently at £535,597, which, while still 1.4% lower than the highest peak, has rebounded from the lows experienced in March 2023.
What’s Keeping Prices Afloat?
Homeownership Dynamics
Contrary to the anticipated market exit rush, UK homeowners are holding steady. Most homeowners either fully own their properties or have a substantial equity portion, reducing the need to sell. Data from the Financial Conduct Authority (FCA) reveals that as of the second quarter of 2023, 63.4% of new mortgages were secured with a loan-to-value (LTV) ratio of less than 75%. Only a minimal fraction had an LTV ratio higher than 95%. Therefore, a significant market downturn would be required to push a considerable number of homeowners into negative equity, prompting forced sales—a scenario reminiscent of the early 1990s.
Mortgage Trends and Interest Rates
The steep climb in interest rates between 2020 and 2023 hasn’t led to widespread defaults. A year ago, 95% of mortgages were on fixed rates, a figure that has slightly decreased to 84%. This shift might indicate a public expectation of stable or declining interest rates, which could influence future mortgage-fixing decisions. The FCA reports that only 1.3% of mortgages were in arrears, with a mere 0.04% leading to repossession.
A Deeper Dive into Mortgage Data
The Evolution of Mortgage Numbers
FCA statistics show a fascinating trend: the absolute number of mortgages has reduced from over 15 million in the first quarter of 2008 to under 13 million, despite the UK’s population growth. This decline in mortgage numbers corresponds with individuals who have completed their mortgage payments from purchases in the 1990s. The reduction in mortgages from 2012 to 2014 suggests that high interest rates and deposit requirements, along with increased stamp duty, deterred a generation from homeownership, despite a decade of low-interest rates in the 2010s.
Government Incentives and Their Impact
Encouraging New Homeowners
The UK government has introduced measures to make homeownership more attainable. In 2021, the deposit requirement for first-time buyers was lowered to 5%, and stamp duty reductions were offered for properties under £500,000. The First Home scheme extends a 30% to 50% discount on new homes to first-time buyers meeting certain income criteria—a move that indirectly benefits developers through subsidies from UK taxpayers and ratepayers.
The First-Time Buyer Conundrum
These incentives, while boosting homeownership, have inadvertently created a shortage of suitable properties for first-time buyers and a challenging leap for second-time buyers due to higher deposit requirements and the loss of stamp duty discounts. This situation has led to a bottleneck at the lower end of the market.
Housing Supply Dynamics
The supply of housing is another critical factor. Barratt Developments, the UK’s largest house builder, reported that a small percentage of their new builds were suitable for first-time buyers. The combined output of the UK’s five largest house builders added a mere 0.2% to the UK’s total housing stock, insufficient to impact house prices significantly.
The Future of House Prices
The government’s interventions, along with high demand due to immigration and a tight housing supply, are likely to keep prices elevated, especially for first-time buyer homes. This complex dynamic underscores the resilience of the UK housing market and presents a nuanced picture for potential investors and homeowners alike.