In 2008, the UK housing market saw a crash with property prices falling by a whopping 20 per cent in a mere 16 months. Then, following the Covid-19 pandemic coupled with the rising rate of inflation, market experts predicted another housing crisis in 2022. During the Covid-19 pandemic and the first national lockdown that was enforced in 2020, the average price of property in the UK increased by almost £47,000. This was due to a sudden increase in buyer demand coupled with the stamp duty holiday. From November 2021 to November 2022, the average price of property in the UK rose by 10 per cent!
That brings us to 2023, where the UK property market has reached a certain level of uncertainty. Experts at Halifax predict that the average price of property in the UK will fall by a whopping 8 per cent in 2023 itself. Nationwide predicts that the average price of property will fall by 5 per cent in 2023 whereas The Office for Budget Responsibility (OBR) has predicted a price fall of 9 per cent in the next 2 years. Estate agents in York believe that the average price of property in the UK will fall by at least 10 per cent over the next 2 years which should bring back property prices to the pre-Covid era. Other market experts believe that the transaction levels in the UK will fall by 21 per cent by 2024 due to the lack of demand and supply.
But, what is the leading cause of the UK housing crisis? First and foremost, it is important to point out that no one factor can lead to a housing crisis. It is always multiple factors at play and multi-layered facets of these various factors that are working simultaneously. For one, the rate of inflation in the UK has reached a 40-year high, and it is showing no signs of slowing down. Also, the increased cost of living coupled with the lack of employment is impacting the financial liquidity of the citizens. Thirdly, the lack of affordable housing in the UK is making home ownership very difficult, coupled with the lack of low-deposit mortgages and the rising rate of interest.
And this brings us to the question on everyone’s mind. Will houses in the UK ever be affordable again? It is very difficult to accurately predict the future of the UK housing market, especially in the long term. As the demand continues to rise while the supply remains consistent, the price of property will continue to rise. Simply put, there is only one solution and that is to build affordable homes. For instance, in Westminster, the government has decided to build 300,000 new houses annually. The government has also announced their new scheme, the Affordable Housing Programme which aims to create almost 180,000 new properties in the next 5 years. According to the data, the UK government needs to build at least 145,000 affordable homes annually for the next 5 years to be able to curb the housing crisis in the UK. With that being said, the UK government also needs to ensure that at least 90,000 of these properties are given to low-cost housing associations and housing councils for social rent.
Estate agents believe that the reason property prices are skyrocketing in high-demand areas such as London, Leeds, Manchester, Sheffield, Birmingham, Newcastle and Derby is because of the rising buyer demand coupled with the stagnant supply. To control the rising property prices, the UK government needs to focus on building more affordable properties in these high-demand areas.
In December 2022, the Bank of England raised the interest rates to 3.5 per cent which is said to be the highest interest rate in the UK since the 2008 housing crisis. The Consumer Price Index is also showing signs of slowing down, with the CPI reaching 10.5 in December 2022. This is a massive drop from the previous months, where the Consumer Price Index was 10.7 in November and 11.1 in October. But the increased rate of interest by the Bank of England is an indication that the interest rates may continue to rise in the coming months, hence putting a lot of pressure on the mortgage rates, the rising rate of inflation as well as the house prices.
