UK Property Market – Stats that make you think…

Our research team frequently come out with fascinating statistical insights. Before we get into some detail about the current state of play in the UK’s property market, I thought I’d share an amazing stat from Chubb (a high-net-worth insurer) who noted that 50% of their motor thefts (where the vehicle has a tracker), were from Land Rover. Given the number of motor brands that’s kind of amazing. For reasons we can only speculate – maybe the Land Rover security system is easier for thieves to manipulate, or perhaps they are just easier to breakdown into parts and sell on the black market. Whatever the reason, it’s incredible! If you own a Land Rover, be warned…

The point here is that statistics are great, but much depends on how you interpret the data and often there’s another side to the story, which is why research should aim to be as rounded as possible. A lot of news flow is based on manipulating, so it’s important when choosing your data source, to be aware of any behavioural bias.  In this respect, there isn’t much that is getting more attention than UK property at present. This week I read that the average 2-year fixed rate is now over 6%, which is likely to be 3-4% above the rate households would have been paying just over a year ago. Just that information alone is causing many news outlets to predict an impending property crash, though is that really likely? There are a few key factors to consider.

The first is that not every house has a mortgage, and those mortgages aren’t evenly distributed across the population. In fact, only 28% (less than a third!) of UK houses are actually mortgaged, with 36% of houses owned outright (no mortgage), and the balance are either rented or owned by the local authority. The majority of people are therefore not exposed to higher mortgage rates.

There are regional differences as well. House prices in London represent 13.3x the average yearly salary, compared to just 4.7x in the North East of England for example. The higher the house price is relative to your salary, the greater the squeeze from the mortgage increase. It has therefore not been surprising to see London property prices fall more than the average in the last 6-9 months.

Now you can’t ignore the average monthly mortgage payment, which is now £1,262, up 59% year on year from December 2021 when the average monthly mortgage payment was £781, and likely to rise further as people’s fixed rates come to an end. Again though, this isn’t evenly distributed across the population, with more of the effects felt in the 20s, 30s and 40s age groups.

One other segment of the property market that is likely to find it hard, is buy-to-lets. Rental growth is definitely coming through, but 5-10% per annum is not going to offset mortgage costs which could go up 80%. With capital gains tax allowances being cut significantly this tax year and next, and other tax benefits of property investments already abolished, landlords with mortgages will find it much harder to generate returns once their fixed rates end.

Now it is also true that comparable with a decade ago, the housing shortage remains. But it is hard to argue that given the cost of borrowing is much higher, and the tax on property gains has risen considerably. Its fair to say the next ten years looks tougher for property prices than the last ten, though if prices stay stable for several years that should make houses more affordable for many.

So, there’s a whistle stop tour of some interesting facts. Our takeaway is that although rising interest rates are having a negative effect on the property market, it is a slow burn, and focused in certain segments of the population. From an economic point of view it is also countered by savers, who are getting more interest on their savings now, and the labour market, which remains very tight (wage inflation is rising 6.6% pa to June 2023). It is definitely going to be a drag on UK economic growth moving forwards, but we continue to believe the UK property market will correct in a more orderly way than the “crash” narrative suggests.