Just what would it take to induce a housing price crash in Britain? Evidently, more than a Bank of England base rate of 4.25 per cent combined with a cost of living crisis.
The Office for National Statistics’ House Price Index – the most comprehensive of the house pries indices – shows that prices fell in February by 0.3 per cent. That includes all transactions and is based on actual sales prices rather than mortgage approvals.
Yet over the past 12 months, prices are still up 5.5 per cent. Given anecdotal evidence of landlords selling up in response to rising mortgage rates, changes to the taxation of buy-to-lets and new rules demanding the upgrade of all rental properties meet a grade C rating on an Energy Performance Certificate by 2028, it is truly remarkable. Not only that, but the end of the Help-to-Buy scheme has removed incentives for first time buyers.
There is no indication, so far, of anything to match the housing slump of 2008-09, when prices plunged 15 per cent in a single year – a slump which itself was rapidly reversed in London and the south-east. Indeed, annual house price growth remains higher than it was on the eve of the pandemic, when annualised growth was running at just over zero. Bizarrely, the worst pandemic in a century, which caused the economy to contract by a fifth in a single quarter, sparked a housing boom which has yet fully to deflate.
Bizarrely, the worst pandemic in a century sparked a housing boom which has yet fully to deflate
It ought to be noted that today’s figures do point to a real-terms fall in housing prices. With consumer inflation remaining stubbornly high at just over 10 per cent, house prices have fallen by around 4.5 per cent in real terms over the past year. Yet they are managing to keep pace with wage growth, which itself is running well behind inflation.
For so many years, UK property has had a reputation as the investment which cannot go wrong – where share prices may crash, bricks and mortar will hold its value. That has created a powerful mentality that is very difficult to dislodge. It is partly a product of housing shortage. We are building 200,000 homes a year – itself a step up from a decade ago when we were managing fewer than 140,000 – while the population is growing at around 240,000 a year. Combined with the trend towards smaller households, and the demand for second homes, it makes for a very tight supply of housing.
Moreover, in London and some other cities whole neighbourhoods have been taken out of the housing supply by buy-to-leave investors. Many of them from overseas, they buy properties and then leave them empty as they appreciate in value.
Today’s ONS index reveals an interesting division between house prices in Scotland, which have grown by 1.0 per cent over the past year and those in the rest of the UK. In England prices grew by 6.0 per cent, in Wales they grew by 6.4 per cent and Northern Ireland 10.2 per cent.
True, Scottish house prices surged in the previous year, rising by 13.8 per cent in the year to last April. But there may also be an element of owner-occupiers being reluctant to buy in Scotland thanks to the increasing income tax rates there. The flight of high-earning taxpayers may be just one more problem with which the SNP has to contend.
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