Why Is The UK Housing Market Struggling?
There are several major issues preventing first time buyers from entering the housing market in the UK.
The first of these is a shortage of supply. For decades we have built less new houses than the market required, which on the one hand does support house prices for existing home owners, which is important for personal wealth.
This shortage is magnified by the bank industries trials and tribulations which have resulted in a complex set of lending rules which mean that banks are only prepared to lend to people who don’t really need to borrow. As a consequence, many of the new properties that are built are snapped up by professional landlords, who rent them out to all those people who can’t afford to buy.
The boom in landlords in recent years has magnified the property shortage, especially as these landlords tend not to churn their propery portfolio as often as homeowners do.
Rising rates of tiered stamp duty have restricted the sales of homes for sale above £500,000. With less larger homes changing hands, people moving up the housing ladder aren’t vacating cheaper homes, further restricting supply of affordable homes for new buyers.
Compounding the unaffordability issues, stamp duty, lack of supply etc. is the current lack of job security and uncertainty regarding employment. This has had the effect of causing many home owners to sit tight, not knowing what is going to happen to interest rates in the years to come.
Many people are reluctant to take on a larger mortgage when there is a danger of interest rates magnifying their repayments. While it is unlikely to result in a calamity for the housing market, periods of uncertainty usually result in market apathy.
Confidence Helps The Market
The UK housing market needs confidence, for builders to commit to all the developments they have in the pipeline, for banks to relax their lending criteria and for the government to somehow control the ability of landlords to buy new properties at the current level.
Combine that with some positive news for the UK economy outside of the European Union & a reduction in stamp duty across the board and the housing market will start to move again.
Will all of this happen? Only time will tell.