4 min Read
29 Apr 2014

Written by Liam

Over 30 years experience in financial services, residential lettings and property sales. Director of a leading national estate agency chain, until leaving in 2008 to pursue other commercial interests. Vast experience in new business development, business change, management development and business strategy.

More about Liam

Why are UK house prices so high? And where will they head in the future?

Why are UK house prices so high?

Supply & demand

All markets are driven by the law of supply and demand and this law applies to the housing market as much as any other.

Everyone who owns a home, or is building a new one, knows only too well that they will only sell if the price is right. In a normal housing market (not the current one by the way) prices will slowly move upwards (around 3% p.a. over the last 40 years) with supply and demand being in equilibrium.

What drives demand?

There are two main factors that drive housing demand

1. Increase in population in the house buying age group

2. Availability of affordable credit

What increases supply?

Again there are two main factors that drive housing supply

1. Increase in the supply of new properties

2. Rapidly increasing house prices (more people will move up the housing ladder as their equity increases)

House prices increase when demand outstrips supply

Currently there are three main factors that are helping to increase house prices

  • The UK population is around 64 million and increased by just under 400,000 in 2012 alone. About 38% of this uplift was from immigration putting increased pressure on the demand for housing, read this article to find out more - UK population growing faster than any other EU country
  • New houses are not being built quick enough to meet demand. At the core of this problem are the UK planning laws that restrict house builders so severely that they can't find  available land to build on, read this article to find out more - Housing crisis will continue for 10 years

Where are we now on house prices?

We are currently in a situation where demand in some areas of the country (London & South East primarily) and with some property types (first-time buyers primarily) is outstripping supply. This imbalance is driving up house prices across the board and although transaction numbers are increasing they are still well below historical annual averages.

So whilst the housing market has recently improved it still has a long way to go before we can say we are in a balanced and sustainable market

So what is the future for house prices?

The future of house prices depends on a number of factors both inflationary and deflationary

Inflationary

  • Government schemes, such as Help to Buy are continued making it easier to get on the housing ladder
  • Affordable credit will continue to be available

Deflationary

  • New mortgage lending rules result in fewer mortgages granted as applicants have to supply more details on income and expenditure
  • Interest rates are increased making monthly mortgage rates more expensive and slowing down the market
  • Slow relaxation of planning laws will increase the supply of new properties

 

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