The UK housing market has been something of an obsession for MoneyWeek, which is no surprise, given that the entire British population appears obsessed with bricks and mortar. We predicted that the overvalued UK market would crash as far back as 2004, but it wasn’t until 2007 and the credit crunch – which briefly put a stop to the free flow of cheap money that was fuelling the bubble – that we finally saw the denouement.
Since then, given the media-at-large’s tendency to focus within the M25 and not that much far beyond it, you may have had the impression that all is well with the property market and that it’s largely roaring ahead, reinflated by central bank money-printing and the usual arguments about short supply that everyone trots out when prices are rising.
But in fact, if you look at figures from Nationwide (the table below), most of the UK beyond the southeast of England is still struggling to recover from the crash. As the figures show, prices in North-East England, Scotland, Wales and Northern Ireland (a bit of a special circumstance, given its exposure to Ireland’s bubble market too) have yet to regain their 2007 peak levels. And in real terms (adjusting for inflation), UK prices as a whole have still to recover to peak levels, as the chart demonstrates.
The reality is that it’s only really in London that we’ve seen the sort of rampant comeback that it’s assumed has happened everywhere else in Britain. However, that said, given the lack of wage growth for much of the post-2008 period (which is only starting to improve just now), prices remain out of reach for many people, even in the most depressed areas. On top of that, the Bank of England’s mortgage market review has made it a lot harder for many potential buyers to get hold of a mortgage – the hurdles that have to be jumped through are far greater than they once were. So what’s been going on?
The rise and pending fall of buy-to-let
In 2000, just over 69% of houses in Britain were inhabited by owner-occupiers. Homeownership went on to peak at 69.7% in 2002. Yet now homeownership in the UK is at its lowest level in 29 years, with only 63% of houses occupied by permanent owners. It’s all down to one of the biggest British investment trends of the last 15 years – the rise of the amateur landlord.
As James Ferguson pointed out in our cover story a month or so ago, first-time buyers – struggling to raise deposits to buy houses at today’s central-bank inflated prices – have been competing with buy-to-let investors for starter properties and for the most part they’ve been losing out. As a result, roughly 4.4 million people (18% of households) now rent the houses they would otherwise have bought from private landlords – up from 2.2 million in 2002/2003. Indeed, for the first time ever, the number of people renting from private landlords exceeds those in council and housing association houses.
However, the good times may be nearing an end for buy-to-let. Obviously, there’s the threat of interest rates potentially rising, but that could still be some way off. Far more pertinent is Chancellor George Osborne’s decision this year to start reducing the tax benefits associated with investing in rental properties.
The maths of buy-to-let very quickly becomes far less attractive as tax relief on mortgage interest is phased out, a fact that many amateur landlords are only just waking up to, judging by the cries of outrage in the financial supplements of the Sunday papers. Have we reached peak buy-to-let? Put it this way – in a country full of cash-strapped politicians looking for easy political targets with wealth to tax, we wouldn’t bet against it.
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| North West | >East Mids | West Mids | >East Anglia | Outer SE | Outer Met | |
|---|---|---|---|---|---|---|
| Q3 2000 average price | £65k | £69k | £76k | £82k | £102k | £135k |
| Q3 2007 | £159k | £157k | £165k | £184k | £215k | £259k |
| Q3 2015 | £146k | £161k | £167k | £199k | £247k | £327k |
| % change since 2000 | 124% | 133% | 119% | 142% | 144% | 142% |
| % change since 2007 peak | -8.30% | 2.20% | 1.20% | 8.80% | 12.10% | 20.90% |
| London | SW | Wales | Scotland | Northern Ireland | UK | |
|---|---|---|---|---|---|---|
| Q3 2000 average price | £148k | £89k | £61k | £65k | £71k | £81k |
| Q3 2007 | £302k | £204k | £154k | £152k | £228k | £184k |
| Q3 2015 | £443k | £220k | £147k | £140k | £128k | £196k |
| % change since 2000 | 200% | 147% | 141% | 117% | 79% | 142% |
| % change since 2007 peak | 31.80% | 7% | -4.40% | -7.90% | -44.10% | 5.60% |