The UK Housing Market

  • 27th June 2018

A Brief History of the UK Housing Market

Ever since the Global Financial Market Crisis in 2008, the UK housing market has drastically changed. In 2009, housing prices reached an all-time low after falling 19.6% since the start of the crisis. During the beginning of 2010, housing prices began to increase again. Prices in central London increased by 25% in 2010 alone. Housing prices continue to rise at an increasing rate until 2014.

From 2014 to 2018, prices continue to increase but at a decreasing rate, meaning that although the actual prices of homes are increasing, the annual percentage increase is getting lower every year. This is partly due to Britain's decision to leave the European Union in June 2016, which caused the Bank of England’s base rate to decrease to 0.25% because the exchange rate for the sterling pound has fallen. In 2018, the average month on month change for housing prices is around 2.9%.

How Does the Bank of England’s Base Rate Affect Housing Prices and Your Mortgage?

The base rate is the official interest rate set by the Bank of England’s Monetary Policy Committee. Banks and mortgage brokers use the base rate as a guide to help calculate the interest rate for mortgage products. Whether a change in the base rate affects you depends on the type of mortgage that you have. If your mortgage contains a variable interest rate, then your interest rate will move in the same direction as the base rate. If your mortgage contains a fixed rate, then your interest payments will stay the same, regardless of changes in the bank rate. While this type of rate protects you from paying higher interest from increases in the base rate, you won’t get the benefit of decreased base rates during the term of the mortgage.

How will the Brexit impact the housing market?

Ever since the referendum result that the United Kingdom will leave the European Union, housing transactions have fallen, due to Brexit uncertainty. A key factor on the housing market would be inflation, which has increased due to the weakened currency of the sterling pound. As inflation rises, people are less excited to purchase homes. So although there may still be price growth, the biggest risk to the housing market would be an increase in unemployment, which would reduce the demand for homes and ability to pay off mortgages, thus causing slower housing growth.

How will the Brexit impact the mortgage market?

Ever since the Brexit announcement, interests rates have been falling, making lending attractive. However, interest rates can not decline forever, and the most prominent threat to the mortgage market would be a rise in the base rate. This would lead to lower loan-to-value mortgages (LTV is the size of a mortgage that a lender is willing to offer you in relation to the value of the property that you are buying or remortgaging).

It is all too soon to tell what is going to happen, but simply knowing a bit of history about the housing and mortgage markets can give you a understanding of what could potentially happen as you prepare to buy a home in the future.


The Financial Times

A Brief History Of The UK Housing Market Since The Global Financial Crisis

The Bank Of England - Official Bank Rate History