UK houses becoming more unaffordable than ever!

  • August 02, 2022

UK houses becoming more unaffordable than ever!

The UK property market showed resilience and came out victorious from the hard times thrown at it in form of the COVID-19 induced global pandemic. After that, the housing market continues to defy the winder macroeconomic backdrop. 13% annual growth was recorded in June 2022 by Halifax, which was the highest since late 2004. The growth was associated with factors including a lack of countrywide supply, which continued to drive double digit growth.

House prices rising at the fastest rate

The UK house prices have been rising at the fastest annual rate in 18 years as demand continued to outstrip the number of properties available for sale in the market.

Halifax, one of the country’s biggest mortgage lenders, has also confirmed the claim with data obtained from the market defying any expectations of a slowdown, as the property prices are rising year on year in June by 13% - the highest since late 2004.

According to Halifax data, the price rose 1.8% compared to May, which was the highest monthly rise since early 2007. The UK house prices have been rising on the month on monthly basis over the past year and have reached 6.8 percent so far this year. An average UK property now costs around £294,845 – another record high rate – as prices continue rising in the country despite the cost of living crisis.

The UK house prices are more unaffordable now

According to UK real estate experts, the market has become increasingly unaffordable due to a surge in property prices – lagging the pace of wage increases. The houses in England were selling for 8.7 times the average annual household disposable income as of March 2021, stated the Office for National Statistics. And compared to the available data, that’s the highest since records began in 1991.

Moreover, the data also reflects a shortage of properties available for sale on the market, which has kept prices rising through the pandemic. This has added more to the growing cost-of-living crisis in the country.

London, the financial capital of the world, remains the least affordable in the region. The people in the lowest 10% of earners have to work 40 years to buy an average house in the UK capital. Even the cheapest houses in London cost eight times the average income for households.

Russell Galley, the managing director of Halifax, said: “The supply-demand imbalance continues to be the reason house prices are rising so sharply.” It is because a large number of people are still interested in buying houses in UK. The demand for UK houses is still strong – though activity levels have slowed, compared to pre-COVID average sales and transactions. However, the stock of available properties for sale remains extremely low.

“Property prices so far appear to have been largely insulated from the cost of living squeeze. This is partly because, right now, the rise in the cost of living is being felt most by people on lower incomes, who are typically less active in buying and selling houses. In contrast, higher earners are likely to be able to use extra funds saved during the pandemic,” he stated further.

The UK housing market not immune to the slowdown

A majority of real estate experts believe that the UK housing market would not remain immune from the economic slowdown in the country. However, it is currently being supported by a huge shift in the demand towards detached homes, bigger homes and the properties that come with open space in form of gardens and lawns.

Therefore, it is seen that the average prices for detached houses are increasing by almost twice the rate of flats over the past year. At the same time, the house price-to-income ratio had touched a record high level.

“In time, though, increased pressure on household budgets from inflation and higher interest rates should weigh more heavily on the housing market, given the impact this has on affordability,” Galley added. “So while it may come later than previously anticipated, a slowing of house price growth should still be expected in the months ahead.”

Soaring house prices will soon come to an end

An era of ever-increasing house prices stimulated by cheap money is finally coming to an end. It is because the central banks created a colossal real estate boom and soon they will have to cope with the consequences of the housing bubble being pricked.

Recently in China, it was observed that banks are about to bail out property developers, so they can complete under-construction projects. Mortgage boycotts are on the rise because people are not ready to pay home loans for properties they are unable to occupy. Simultaneously, the sales of new-built properties have also plunged and the start of new housing projects has also halved from pre-pandemic levels – creating problems for heavily indebted property companies, the banks they have borrowed from and the wider economy.

The UK property market is also following the trend. According to data obtained from the Halifax, the country’s biggest mortgage lender, house prices are rising at an annual rate of 13% – the highest in almost two decades.

Last week the Office for National Statistics published data for housing affordability, based on the ratio of property prices to average earnings. In Scotland and Wales, the ratio was 5.5 and 6.0 respectively, below peaks reached at the time of the 2007-09 global financial crisis. In England, the ratio was 8.7, the highest since the series began in 1999. Within England, regional variations were observed. In Newcastle, upon Tyne, the cost of an average home was 12 times the annual income of someone in the lowest 10% income bracket. In London, it was 40 times.

A majority of experts agree that a point has reached where houses have become too expensive for potential buyers but a prolonged period of low interest rates means that it has also taken time to arrive at this reality checkpoint.