As the UK Property Market Cools Off, Will Consumers Start Buying? by Marcus Turner-Jones

Monday, 31 July 2017
Rapidly rising property prices have become the norm in the UK over the course of the last few decades, with many people having been pushed out of the property market altogether. Recently, however, the property market has slowed down significantly, which could be a continuing trend given the general unaffordability of housing. Will this lead to higher levels of purchasing? Here are some considerations.

The Property Bubble

The rise in property prices in the UK has been dubbed the property bubble, given that it has been so swift and unprecedented. Despite a severe dip after the financial crisis in 2008, prices have continued to become less affordable for the average person living in the UK, with more and more people being forced to rent as a result.

The property market has slowed down, but only by a bit, and house prices were still up by 4.7% compared to last year. Some may think that the bubble is about to burst, whereas others will argue that it is just a minor blip in the property market’s aggressive ascent.

Wages

Since house prices have been rising at an exponential rate, they have long dwarfed wage growth, which has been lacklustre at best since the financial crash. Minimum mortgage deposits have become much larger, and so even borrowing money to buy a property has become incredibly difficult for many people.

Rent has also been rising rapidly due to an increase in the number of landlords and less people buying property, meaning finding a place to live is becoming increasingly difficult. People must now spend a hefty amount of their wage/salary on mortgage repayments or rent, and stagnant wage growth means real income for the majority of people has relatively meagre spending power.

Future of the Economy

The financial crash played a significant role in severely slowing the economy and reducing the population’s overall prospects for the future. In almost 10 years, the situation for buyers has become worse, but events such as Brexit threaten to throw yet another spanner in the works.

Whilst Britain’s exit from the EU may reduce interest (and by extension prices) in the property market, it is also forecasted to have many potentially dire economic consequences, which could lead to shrinking wages and the value of the pound plummeting once again. This has caused much uncertainty and made people cautious about investing in property.

Who Can Afford to Buy?

For the majority of working class people, owning property will continue to be a pipedream. It is more likely that wealthy landlords and upper middle class couples will, for the time being, be the only likely candidates for purchasing property.

Similar to investing money in global markets, property investment is now viewed by many people with large amounts of capital as a lucrative business, and so property is usually held onto rather than sold, which can stifle supply and raise prices even further.

It looks to be unlikely that there will be a surge in property purchasing any time soon, given the extreme extent of property price hikes in comparison to stagnant wage growth. This may change if prices begin to consistently fall, but for now it is hard to see how the unaffordable housing situation will change.

Marcus Turner-Jones graduated from Economics at the University of Sheffield before going on to work as a Market Analyst. He now writes freelance and spends time between his hometown of Harrogate and Buenos Aires.