UK Housing Market

A look at the main UK housing market data.

  1. House prices
  2. Affordability of housing
  3. Interest rates
  4. Supply of housing

House price inflation

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Nationwide data

  • Annual house price inflation running at 5.3% in Q1 2016
  • London showed strongest housing market with prices rising more than other areas.
  • Price of a typical home is £198,564 (Q1 2016)

UK House prices in past few decades

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  • In 1969, average house prices were: £4,312
  • In 1975, average house prices were: £10,388.
  • In 1980, average house prices were: £22,676
  • In 2016, average house prices are: £198,564.

Read moreUK Housing Market

Housing market crash

Despite housing being a secure asset, the housing market can be prone to bubbles and periods of rapidly falling prices. In recent years, the period 2005-09 saw a prolonged and significant fall in house prices in both the US and Europe. A housing market crash can be precipitated by a change in economic fundamentals (higher …

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House prices and interest rates

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Interest rates have a strong influence on house prices, principally because changes in the interest rate affect the cost of mortgage payments.

How do interest rates affect house prices?

  • If interest rates rise it will have a significant effect on increasing the cost of mortgages. Higher mortgage payments will deter prospective home-buyers – it becomes relatively cheaper to rent.
  • Also, the high cost of mortgage payments may also force some existing home-buyers to sell.
  • This increase in sellers and decline in buyers will cause house prices to fall.
  • See also: The effect of higher interest rates

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When interest rates were increased 1988-92, mortgage interest payment rose rapidly.

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The rise in mortgage payments and rise in home repossessions of 1991/92 led to a rapid fall in house prices.

UK base rates

base interest rates

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High interest rates caused house price fall in 1990.

However, the fall in 2008/09 – was not due to interest rates, but due to global credit crunch and recession.

Evaluation

  • It is important to bear in mind that interest rates are not the only factor affecting house prices. It is possible for interest rates to increase, but house prices to continue to rise.
  • For example, if confidence is high and we experience a period of rising incomes then people may continue to buy, despite the rise in interest rates.
  • The supply of housing is also very important. A big factor in the current rise of UK house prices is due to the shortage of supply, which is pushing house prices higher.
  • Fixed rate mortgages. Around 50% of homeowners are on fixed-rate mortgages, therefore, they will not notice the effects of higher interest rate payments until they remortgage in 2 or 5 years time. There is often a time-lag between higher interest rates and the effect on house prices.

Read moreHouse prices and interest rates

Why are UK house prices so high?

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In recent years, we have had a devastating global credit crunch, the longest and deepest recession since the 1930s (if not worse). Across Europe, we have seen mass unemployment and in countries like Spain, Ireland and Portugal, the housing market has seen up to 50% falls in house prices. Yet, despite this financial and economic …

Read moreWhy are UK house prices so high?

Impact of falling house prices

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A look at the economic impact of falling house prices. Readers Question: Explain why a decrease in the price of houses can lead the economy to experience a recession. In summary: falling house prices reduce consumers’ main form of wealth. This tends to cause lower spending and lower economic growth due to a negative wealth …

Read moreImpact of falling house prices

House prices post Brexit

How will UK house prices be affected by Brexit – in both the short term and long-term? In the past few decades, the UK property market has been characterised by a long-term rise in real house prices. UK house prices have risen faster than inflation – especially in London and South.  In fact, we could …

Read moreHouse prices post Brexit

Immigration and housing

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Is net positive migration a factor behind the UK’s recent rise in house prices? Given the rapid rise in house prices since the mid-1990s and the corresponding rise in the number of immigrants, it is hard to avoid the conclusion, levels of net migration are having, at least, some effect on exacerbating the UK housing …

Read moreImmigration and housing

Consequences of generation rent

Generation rent is a term to describe how many young people are unable to buy a house, but need to privately rent. Since 1993, house prices have risen significantly faster than incomes, making a mortgage out of reach for many people under the age of 30. Rising ratios of house price to earnings for first …

Read moreConsequences of generation rent

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