Compared to the same time last year, property prices were up by only 3.8% in March compared to the same period last year. A growth rate this slow hasn’t been seen since May 2013. This represents less than half the growth that was witnessed 12 months earlier and prices have actually gone flat since February and some experts suggest they may have fallen at some point. Is this just a temporary situation or does it mark the beginnings of yet another dark period for the housing market in the UK?
Although some would argue that the City of London skews the figures, there is no doubt that the cost of housing is generally high in the UK. According to the Office for National Statistics, the average annual salary is 7.6 times less than the average cost of a house which is probably higher than it has ever been before or at least close to achieving that record. In comparison, the level of home ownership is the lowest it has ever been since 1985. It’s easy to claim that this is down to the fact that millennials prefer a more flexible lifestyle that is unencumbered by owning a home. However, a more realistic reason for all this is that the prices of houses are just far beyond the reach of a lot more people.
Property prices in the UK have always been high and some even stay high during the most trying circumstances. However, there are now two factors that could present a problem to the market. The first issue is the recent changes in taxation that have made buy-to-let a lot less attractive. There is now a stamp duty surcharge on second homes but even worse, landlords are no longer able to offset as much of their mortgage interest bill as they initially could using rental income. This means that leveraging is no longer as effective as it used to be and this will likely prompt some landlords to sell their property while dissuading those who’d planned on becoming landlords from taking on buy-to-lets. The rush to buy second homes in April 2016 before the surcharge kicked in and the resulting high prices due to demand is quite similar to the sequence of events that preceded the crash in the 90s which started when buyers rushed to buy homes before the restrictions to mortgage interest relief at source (Miras) came into effect in 1988.
Another problem with the current housing market is that houses are unaffordable at a time when mortgages are as cheap as they’re ever going to be. Access to Mortgages is currently restricted thanks to the credit standards but this can be changed by the Bank of England but the bank doesn’t seem interested in doing this. Although the government is trying to come up with various ways to help people buy their first homes, people are not satisfied with the current house prices which would mean taking on a great deal of debt.