The housing market in Britain has constantly been growing despite all economic indicators beginning to flash red. In addition to regional data for the second quarter, the Nationwide Building Society will also release its most recent house price index for June this week.
The Bank of England’s latest mortgage lending figures should also provide more insight into the status of the real estate market in the UK. Although there has been an increase in prices by 5% this year, Nationwide is yet to release a projection for annual house price growth due to the larger economy’s instability.
When estate agents shut their doors and home builders put their tools away at the start of the COVID pandemic, only a few would have expected such booming conditions. But, due to the stamp duty holiday, the demand remains high which Rishi Sunak promptly enacted to support the market after it reopened. Also, many employees began working from home as they desired more space and greener surroundings. Rising costs were unabated despite the stamp duty holiday’s ending last summer and the sudden rise of the highly contagious Omicron strain.
As there are only a few houses available, many newly listed houses are picked up within a week or two, contributing to the housing market frenzy.
Surprisingly, the job market has been robust, with mortgage rates at historically low levels and the unemployment rate stood at 3.8% in April, considered one the lowest since the 1970s.
Nationwide’s chief economist Robert Gardner stated that Nationwide had recorded a slowing in annual house price growth to 11.2% in May from 12.1% in April. But this was due to base effects, and the monthly gain was strong at 0.9% – the 10th successive monthly increase, he added.
With inflation in the UK hitting a new 40-year high of 9.1% in May and five recent rate increases from the Bank of England, the crucial question is how long the market can withstand the cost-of-living problem.
Gardner says there are only tentative signs that there is a slowdown in the market, although, like other experts, he expects it to cool in the coming months amid the economic chill.
The mortgage approvals in the UK decreased to 66,000 in April from 69,500 in March and the amount of mortgage debt that was net borrowed decreased to £4.1 billion from £6.4 billion; both figures were marginally below pre-pandemic levels.
But analysts point to the strong labour market, a continued shortage of properties, and mortgage rates which are still cheap by historical standards.
Anthony Codling, an independent housing analyst and founder of the property website Twindig, said, “I did not expect house prices to rise when the UK government closed the housing market. I thought at best house prices would be flat. UK house prices have scaled new heights and many will be hoping it is not a case of what goes up must come down.”
This year, Property firm Knight Frank had raised its forecasts of house price growth to 8% from 5%, just falling short of the 10% notched up last year.
Since more than 80% of existing mortgage holders are on fixed-rate deals, the effects of rate rises are expected to be minimal. About 45% of mortgage balances had variable rates in 2007, at the start of the global financial crisis, and that percentage increased to 65% in 2013. The usual mortgage payment amounts to 31% of gross income, which is slightly higher than the long-term average of 29% but still well below than the highs of 45% witnessed right before the financial crisis.
However, Gardner stated that a 10% down payment on a first-time-buyer home is equivalent to 56% of the average yearly salary.
Meanwhile, more than homeowners, life appears to be much more difficult for renters.
According to the Centre for Economics and Business Research, in the year leading up to May, rents agreed upon for new contracts increased by 10.6%, with those in London increasing at the fastest rate of 15.7%.
Housing market disruptions didn’t seem to be affected by COVID shocks.
UK annual house prices slow for the third month in a row: Halifax
Meanwhile, for the third consecutive month, the annual rate of house price growth in the UK slowed in May, and Halifax, a mortgage provider, predicted that this trend will continue as people battle with high inflation.
During an interaction with Reuters, Halifax Managing Director Russell Galley claimed that despite a tighter cost-of-living squeeze as inflation reaches 10%, a lack of available housing remained the primary factor driving up house prices.
He said, “However, the housing market has begun to show signs of cooling. Mortgage activity has started to come down and, coupled with the inflationary pressures currently exerted on household budgets, it’s likely activity will start to slow. So, there is perhaps one green shoot for prospective purchasers; with overall buying demand down compared to last year, we may be past the peak sellers’ market.”
The asking prices for homes placed up for sale between May 15 and June 11 were 0.3% higher than a month earlier and down from a 2.1% increase in May’s figures, according to the real estate website Rightmove.
Asking prices have increased by 9.7% compared to a year ago, which is less than the 10.2% increase seen in May.
Rightmove Director Tim Bannister said, “The exceptional pace of the market is easing a little, as demand gradually normalizes and price rises begin to slow, which is very much to be expected given the many record-breaking numbers over the past two years.”
Britons expect further increase in house price
Research Director of market research company Ipsos, Ben Marshall shared his views about the housing crisis in Britain.
He said, “It is a sign of the pessimism surrounding housing in Britain that people expect things to get worse in terms of the two features of the housing crisis they consider to be the most important – rising house prices and building enough affordable homes. It is not that they see Governments as unable to do anything about housing; there continues to be a strong sense of ‘do something’ and ongoing support for different policy responses. The extension of Right to Buy receives majority support but so too do rent controls and giving local government more powers to tackle second and empty homes.”
Why has the inner London property market been flat?
Rightmove reports that asking prices in Zone 1 in London decreased by 3% while being unchanged in Zone 2 in the year before the Brexit referendum. Real estate prices in London may have increased as a result of the uncertainty brought on by Brexit.
In an interview with ‘This Is Money’, Charles Eddlestone, co-founder of the home selling platform, said, “Expectations of runaway gains in these prime areas of London — once a market awash with foreign cash — have been shattered. Put simply, the number of buyers chasing the market has softened drastically. Many foreign investors shied away from London in the aftermath of the Brexit vote. This had an impact in many areas of the capital but it was most noticeable in Zone 1.”
Rob Dix, the founder of the real estate forum Property Hub, believes it is typical that London and the South East see the quickest growth at the beginning of an economic cycle before slowing down.
The average asking prices in Zones 1-3 of London rose by over 80% in the seven years preceding Brexit. Between June 2009 and June 2016, the average asking price in several London boroughs more than doubled.
First-time buyers
According to the English Housing Survey 2019-2020, there were 827,000 first-time buyers in England, an increase of 100,000 from the prior year. In the UK, first-time buyers are now, on average, 32 years old, down from 33 in 2018-2019.
First-time buyers put down an average of £42,433, a 12.6% decrease from the prior quarter. The percentage of first-time purchasers who use savings to cover their deposit has increased somewhat over the previous 12 months, while the percentage who accepts a gift or loan from friends or family has decreased.