House price growth hits 18-year high

Historically bricks and mortar purchases have been seen as concrete investments with house price growth steadily and sometimes sharply rising year on year. However, the steady rise of house prices and the stable investment it represented was challenged in 2008. In that year average house prices dropped rapidly by 15%.

This is because many people, especially in America were missold unaffordable mortgages. As buyers inevitably could not afford to pay mortgage rates, banks and mortgage lenders lost millions, with some companies collapsing entirely. This ushered in the financial crisis or the credit crunch, where banks restricted lending. Property prices dropped as did consumer spending.

Property prices did not return to post 2008 levels until 2012 when the housing market began to recover. House price growth has since continued and UK house prices are at an 18 year high.

But, how much have UK house prices risen and why?

How much have house prices increased?

According to mortgage lender, Nationwide Building society house prices have risen by 14.3% in a single year. It seems the pandemic has had a large effect on the housing market as house prices have risen by 21% since it began. However, it has been speculated that house prices peaked in March for the year.

Wales has seen the highest house price growth at 15.3%, whilst England saw an average price increase of 11.6%. Interestingly the growth in UK house prices runs paradoxically with a sharp drop in disposable income. Real disposable income has in fact seen its largest drop since records began in 1947. This is largely due to rising inflation and higher taxes. Some are speculating whether or not this trend is sustainable.

Is the house price growth sustainable?

Experts are predicting that as house prices rise the housing market will become more unstable. It has also been shown that those on the bottom of the economic ladder will be hit hardest by the boom. With living cost prices rising, as well as inflated housing prices, it seems an uphill task for those on the lower rungs of society to purchase property.

With the power of household incomes being diminished by rising interest rates and global energy prices, there seems like there is an exorbitant risk emerging. Global energy prices have skyrocketed with the UK price cap rising by 54% – more than doubling a household’s energy budget. This means there is a chance for those with less disposable incomes to default on their mortgage repayments. This could in theory usher in a new financial crisis.

However, Robert Gardner Nationwide’s chief economist has predicted the housing market will slow with house prices dropping in the coming months.

Why are house prices rising?

Gardner attributes the increase in property sales to low unemployment rates. Unemployment has dropped by 3.9% in March since January 2022. It has also been speculated that there have been significant savings accrued during the pandemic. This meant that more affluent households had more money to invest in the housing market.

Others have suggested that house price growth is also attributed to the pandemic for different reasons. The suggestion is that as companies scale back and adapt to remote and hybrid working office spaces are becoming increasingly defunct. Instead of renting office space, many people have realised they can work equally well from home.

Instead of investing in office space, business owners have been opting for buying larger houses to base their operations from. Similarly, those who have been living in cramped flats to be closer to the city they work in, have found they no longer need to. Instead, they can buy less expensive, more spacious properties outside of urban areas. This has created a robust demand for housing and house prices have risen to reflect this.

The housing demand has been further exacerbated by a shortage of housing in the UK. There have been supply issues across the globe, which meant any building work in the UK has been slow.

The UK government also introduced a stamp duty holiday in 2020 to help house buyers purchase property. The stamp duty holiday was then extended in 2021. What the stamp duty holiday meant, was that anyone buying a house costing less than £500,000 did not have to pay tax on their purchase. This further boosted house price growth.

What is the average house price in the UK?

The average house price in the UK is now at record levels, coming in at £265,312 according to Nationwide. House prices on average increased by £33,000 in a single year. This is enough to buy property in certain parts of the nation. However, not all businesses agree on the specific average but they do agree on a steep rise in house prices.

The average house prices in the UK vary, but England, Wakes, Scotland and Northern Ireland have all seen significant growth:

  • Wales – £205,000 (13% house price growth in a year)
  • Scotland – £180,000 (11.2% house price growth in a year)
  • England – £293,000 (10.7% house price growth in a year)
  • Northern Ireland – £159,000 (10.7% house price growth in a year)

Will rising house prices and living costs deter buyers?

Even though house prices rose to reflect demand it has been speculated that rising prices could dissuade first-time buyers. Global energy prices, rising food bills, higher taxes, and National Insurance rates are sure to stretch household budgets.

Coupled with higher house prices, means those with shaky finances are worried about mortgage rates. Price rises and the instability of businesses amongst the pandemic spells a risky time to apply for a mortgage. For example, ONS data showed that in 2021 (quarter 3) 100,835 businesses closed. This shows that the job market, as well as the housing market is far from stable.

Bluestone Mortgages chief executive Steve Seal stated:

“The rising cost of everyday items, soaring energy bills and the upcoming increase to National Insurance contributions will all have an impact on affordability and put further pressure on the cost of living.”

As a result, it’s likely many consumers will put off the homeownership process for fear of rejection, or they may have already been turned away due to their more ‘complex’ needs.

What are some tips to get mortgages approved?

With property values increasing at the same period as a hike in living costs first time buyers fight an uphill battle. However, there are a number of tips to improve their chances of gaining a mortgage as well as improving mortgage rates.

  • Get in control of debts – It is essential to get in control of any debts before applying for a mortgage — not least to improve your credit score. Budget household incomes and set aside a reasonable yet affordable amount to pay back each month. It may be worth consolidating your debt into one single manageable loan along as this does not affect your credit rating. Also, look at your budget and eliminate any unnecessary purchases or standing orders you no longer need. These savings can be used to repay more debt or be put towards a mortgage deposit.
  • Boost your credit score – Do whatever you can to boost your credit score. As mentioned repaying debt consistently can improve this. Having a consistent address and being on the electoral roll can also help.
  • Maintain your employment status – It is always good to keep your options open for different career opportunities. However, regularly switching jobs may represent a risk to mortgage advisers. So, it may be worth sticking with your job even if you want to move until you have secured your mortgage.
  • Save a healthy mortgage deposit. Obviously, your financial circumstances and salary dictate how much you can put down for a deposit. Just remember that the more you put down, in general, the better the mortgage rates will be. It may be worth waiting and saving further — perhaps staying with family until you can save. Or, you could ask a family member for financial help to secure a deposit.
  • Take advantage of first-time buyers’ schemes. For example, some schemes allow you to put down only a 5% deposit to secure a mortgage.

Rising house prices: Summary

Despite the housing market crash of 2008, there has been a steady rise in house prices since then. In March 2022 this reached a crescendo as house prices reached a historic 18 year high. Incredibly this comes amidst a historic drop in disposable income because of a sharp rise in living expenses.

The average house price in the UK rose by £33,000 in a single year. UK house prices average out at around £265,312. Of course, different countries in the Uk have different UK house prices. Unsurprisingly England has the highest Uk house prices whilst Northern Ireland has the cheapest.

The house price growth has been attributed to a number of factors. This includes:

  • A drop in unemployment
  • Accrued savings during the pandemic
  • People moving to larger homes because of the freedom of remote working
  • Shortage of houses
  • The stamp duty holiday

However, it has been speculated that rising prices will persuade first-time buyers not to take out a mortgage. Furthermore, increased living costs may usher in a further financial crisis if mortgage repayments can’t be made. Rising inflation, tax, a hike in global energy prices, and house price growth are all contributing factors of concern.

However, those that are considering taking out a mortgage, despite the high cost of the average UK home, and other prices rising, there are a number of tips to follow.

This includes:

  • Getting in control of debts
  • Boosting your credit score
  • Maintaining your employment status
  • Saving for a healthy mortgage deposit
  • Taking advantage of first-time buyers’ schemes