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Increase In Housing Prices UK
The world is witnessing the longest and deepest recession since the 1930s after the impact of Covid 19. Despite the grave financial and economic situation, UK house prices have increased during this time. In the first few years of the economic crunch, UK house prices did slip down but this was only temporary.
UK Property Market
When the pandemic started, most people predicted a drop in house prices but the reverse came about. As of March 2022, an average house price in UK stands at 279,000 – that is 21% higher than in February 2020. With government support close to a halt, interest rates rising and serious concerns growing over the cost of living, the housing market is under immense scrutiny. However, most researchers and real estate experts predict an 8% increase in house will price in 2022 and 2023.
Top 4 reasons for the increase in UK housing market are shared below:
1) Relatively Low-Interest rates
Low interest rates have increased house prices in UK. Low interest rates tend to make purchasing a house more attractive and feasible than renting. On the other hand, low interest rates also facilitate buying a house than investing in shares because it can give a better rate of return, An investor looks at the return on housing (rentable income) vs cost of buying a house (mortgage interest payments). Very low interest rates increase the attractiveness of buying a house as an investment.
2) Renting is expensive and inconvenient
It is common knowledge that the best alternative to buying a house is renting. But with the global credit crunch on the rise, the cost of renting has also risen faster than incomes. It is true that the price of housing is now rising faster than renting, but it still makes economic sense to buy rather than rent. This means people are increasingly looking towards unconventional mortgages to help them buy a house. The expensive nature of the UK housing market raises significant concerns such as – lack of geographical mobility, wealth and income inequality, an economy vulnerable to boom and busts in house prices. But, it doesn’t look like changing in the near future.
3) The Pandemic Effect
March 2021 witnessed an unprecedented fall in GDP because of the Covid 19 Lockdowns- causing many workers to lose their income and jobs. Despite the GDP still low as compared to the pre-crisis trend, the prices have only seen an increasing trend. Covid has ironically made buying a house even more attractive. There is likely to be a long-term shift towards buying a house. Therefore, a good living space becomes even more desirable. This is shown in the contrast between growth of prices in city centres and in the suburbs.
4) Structural Issues At Play
The UK housing market has several structural glitches on the supply side. One is that the supply of new build housing has always struggled with population growth. We believe that it is a combination of people living longer and older owners having little incentive to downsize means the average ownership tenure has lengthened, reducing the number of existing houses coming onto the market at the top end. With older people are less likely to sell their often-higher value properties than in the past and buy-to-let landlords — who tend to hold rather than sell — accounting for a growing share of homes at the bottom end, the market has become severely disorganized.
Conclusion
In the last two years, we have heard several predications that the UK housing marketing was going to crash but it has come out to prove everyone wrong- with the prices continuing to increase. While households are now facing rising interest rates and a severe cost-of-living crisis, we do not expect these headwinds to derail the market’s momentum, with price rises set to continue into 2024.
