What Next for U.K. House Prices?


18 ratings



Jay Lakhani

16 Oct, 2013

in Fundamental Analysis

In 2008 I wrote an article for T2W entitled: Housing Boom – is the party over? in which I categorically stated that I expected house prices to fall substantially and that investors should look to invest in the stock market from 2008 onwards. I was right on both counts. House prices in some areas have dropped as much as 25%, while the average stock market index has nearly doubled. 

After a decade long boom due to lower interest rates and easy lending, the party finally came to a sticky end for U.K. property prices in 2009. According to Land Registry, property prices in the U.K. rose by an astronomical 200% in a decade.

Five years on, I find it difficult to make a case for increases in house prices in the U.K. based on numerous factors. To start with, the major U.K. banks are effectively owned by the governments, and they are not much more secure now than they were a few years ago. In addition to that, to balance the books, we have had the austerity measures and cut in benefits which could affect general confidence levels.

Admittedly, in 2008 I was expecting a much bigger fall than what we have seen so far!  Housing prices in the U.K. have been propped up by the following measures:

  1. Low interest rates meaning that many are able to afford the monthly repayments despite decreases in overall household incomes.
  2. Low rates are keeping ‘forced sellers’ to a minimum as, despite the recession, we have not seen big jumps in repossessions - unlike in previous recessions.
  3. There has been an increase in house buying under shared equity schemes.
  4. Government mortgage guarantee schemes have helped to boost the housing market.
  5. The Euro zone crisis has meant that many wealthy foreigners have been buying homes in the U.K.

So, what are the big stumbling blocks preventing the property market from increasing substantially from now on?

  1. A crackdown on interest only mortgages.
  2. A requirement for higher deposits.
  3. Austerity measures, which could lead to uncertainty in the markets, as well as fear within households, resulting in them not wanting not to spend.
  4. Potential increases in unemployment.
  5. The Euro zone crisis.

In addition to the above, the number of Buy to Let mortgages has been gradually increasing as landlords are cashing in on rising rental income, as well as no sign of mortgage rates increasing in the near future.  The low interest rates over the last few years has meant that Buy to Let investors have made substantial profits, many to the tune of millions of pounds, as they snap up properties coming into the market at the expense of first time buyers.

What is ironic is that the government is helping these investors by way of low interest rates, and then also paying them a good return in the form of rents via housing benefit payments to tenants. The current cost of housing benefits to the government is well over £20 billion each year. Local councils simply have no houses left in their portfolio!

Some of the blunders of past government policies, both Conservative and Labour, include selling off gold reserves when it was around $200 and also selling council houses at ridiculously low prices. This has meant that the government has incurred substantial losses from the sale of these assets. Housing is the biggest loss, both in terms of not having those assets on the balance sheets (there were many instances of people buying homes at, say, £30,000 and now these houses are worth over £500,000), and now having to pay substantial amounts in housing benefits!

Despite the fall in house prices in the past 5 years and slow increase in salaries, there is still a mismatch between earnings and house prices and the government is simply not doing enough for first time buyers.

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Land Shortage?
When you go up on the plane and look out of the window, all we seen lot of empty space!
Just need the will to release the land

May 20, 2015

Member (41 posts)

I would not blame Maggie completely, it was a good thing to get people on the property ladder and thousands have benefited from this.

what has screwed the whole scenario is the BUY To Let guys.
Put 15% deposit and the RENT will be TWICE the interest only mortgage payment.
and the LOW interest rates has to be blamed on this.

One of my friend has over 200 BTL properties.
so what is the way out???

Problem imo is the supply and cost of land.

Strangle supply of land, restricct building permits and permitted developments and you choke the market to pay stupid prices.

New green builds and off-grid developments have a chance to dramatically change lifestyles and resolve housing shortage but Councils and big G will not move.

Whole country is in the hands of the Lords and Barrons with vested interests to keep prices high.

May 20, 2015

Member (17807 posts)

maybe one of the ways to rectify this scenario is to shake out the BTL owners
The question is HOW?
> Many of the tenants are on housing benefit, so costing the Govt in Billions - maybe tighten the benefit laws, If the 3 million East Eurpeans immigrants can find work, then why cant the Brits find work????
> Maybe apply a premium to Interest rates to the BTL mortgages
> Rent Controls

C'mon Cameron, get cracking!

May 20, 2015

Member (41 posts)