Market Insight October/November 2018
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10 Years on

10 Years on

The housing markets recovery following the 2008 financial crash.

On 15 September 2008, Lehman Brothers filed for bankruptcy, sparking what was to become one of the worst financial crisis in living memory. 

In the 14 consecutive years leading up to the Lehman’s crash house prices across England had been rising at an average annual rate of just over 10%. But in 2008, as homeowners struggled to repay their mortgages prices fell by 4.1% on the previous year and continued to fall throughout 2009. In 2008, 377,200 households went into arrears, forcing many to sell. 

The recovery, when it came, was far from uniform. In London it took just two and a half years for house prices to return to their 2007 peak, but in the North East prices struggled to recover and today remain below their pre-Lehman’s peak. 

Prime Property led the recovery 

It’s the most exclusive properties that have delivered the best returns. Across prime London the average price of a home has risen 80% since Q1 2008, compared with 65% across non-prime areas of the capital. 

While the average cost of a prime country home has risen just 25% over the last 10 years, compared to 88% for prime city homes. But the tide is turning and for those leaving the capital, prime country now looks good value. 

Until Stamp Duty put the brakes on 

By 2014 such was the recovery in the housing market that George Osborne, then chancellor, introduced higher rates of taxation to slow growth at the top-end of the market. At the same time he made it cheaper for those buying homes under £1million. The net effect was to dampen sales over £1million, a market which continues to struggle today. 

In April 2016 Osborne introduced further taxation in the form of a 3% stamp duty surcharge on second home purchases, which in turn led to a reduction in the number of properties bought by landlords. In fact, since April 2016 landlords have sold 103,000 more homes than they purchased. 

Outlook 

The future of the UK’s housing market will be dictated by the future path of the economy, which in turn depends on the terms of the UK’s exit from the EU. 

But the economy is performing steadily. A pickup in wage growth, which is now rising faster than inflation, is good news for households. This combined with low interest rates and healthy availability of mortgage lending provides upside. However affordability is still biting and this combined with Brexit woes will continue to impact on sentiment in the months’ ahead. 

Across the UK, house prices are rising at a modest 3.0%. Looking ahead we expect to see continued slow growth into 2019, with small price falls in London and some areas of the South. 

However, in prime central London we expect to see price rises next year, although most of this is just correcting from previous falls. Meanwhile first-time buyers benefitting from stamp duty relief are expected to keep the lower end of the market active too. 

But unlike ten years ago, the challenge today isn’t about getting prices to recover, it’s about getting people moving again. 

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