Predicting movements in house prices is always something of a fool’s errand. At the end of 2019, house price inflation was low (actually pushing towards zero) and trends were pretty flat. There were few additional levers left to pull for the housing market: interest rates already rock bottom, loans to value (LTV) rising, income multiples high and population pressures receding thanks to Brexit, so things looked set to stay that way.
Roll forward 12 months, and Covid’s ‘escape to the country’ along with the woefully ill-advised (and unnecessarily extended) stamp-duty ‘holiday’ meant annual house price inflation had raced to 7.5 per cent. Six months later it was running at 13.5 per cent. Since January 2020 the price of the average UK home (according to Nationwide) has increased by £55,000 or 26 per cent: this is more than they had increased in the preceding 9 years. Few, if any, saw that coming.
House prices are a near obsession. Those who are already owners celebrate the rise in personal wealth and those outside ownership bemoan that they will never get the opportunity to own. In the minds of politicians, the direction of house prices can win or lose power. So, whether it is right or wrong to obsess about house prices, the question that is on a lot of lips, a lot of the time: where are house prices going next? We appear to be at a point of inflexion, so however ill-advised it is to speculate we examine what we see as the key issues that might settle this question. There are a significant number of different drivers of the housing market but in this article I have picked what I believe to be the most important at this juncture: essentially can a borrower borrow and can/will a lender lend? While many view the housing market as being one driven by aspirations, in reality it is all about cost and availability of debt.