What Does the Future Hold for the UK Housing Market?

UK Housing Market – Although ‘love’ is sometimes a lustful word “a thousand times misused”,

this is certainly not the case when it comes to the British love affair with bricks and mortar.

The first time buyer (FTB), buy-to-let investors (BTL), the government and the Bank of England (BOE) are all economic ‘actors’ playing a key role on the property stage. All these actors are hoping for a better future, against the backdrop of changes and uncertainty in the current UK housing market. Though it is difficult to predict, there are various factors that can act as ‘pointers’ as to how the housing market may perform in future. They are:

  • The global economy;
  • The UK economy;
  • Interest rates;
  • Brexit
  • Changes to stamp duty;
  • Changes for the mortgage interest restriction;
  • The Housing and Planning Bill


UK Property Market

(i) The Global Economy

It appears the world economy is now slowing down: the price of oil is falling, which is bad news for oil companies; quantitative easing embarked upon by many central banks are now being scaled back; the Russian ruble has collapse in value; the Gulf investors, who have invested heavily in the UK property market, are also repatriating their money home; and China’s economy is slowing. Chinese government is limiting the amount an investor can take out of the country to $50,000 (£34,000) annually. If this continues, this may affect the UK housing market.


(ii) The UK Economy

Whilst the global economy may be slowing down, the UK economy is reasonably sound: unemployment is 5.2%, which is the lowest for decades; the growth rate of the economy is around 2%; the interest rate is the lowest for years; etc. It is therefore of no surprise that house prices are rising. The average property price in the UK is now almost £300,000. It could be argued that the health of the UK economy can cancel any adverse impact from the global economy.  The economy of China or Russia may be slowing, but the exposure to these countries are relatively small.


(iii) Interest Rates

The Bank of England has kept rate at 0.5%, which is the lowest rates have ever been. The fall in the rate of inflation makes any rate hike unlikely in the foreseeable future. The collapse of the price of oil has contributed to the deflationary trend. This makes mortgage bills low, thereby creating a great environment to invest in property.


(iv) Brexit

Brexit is a shorthand for Britain exiting the EU. What would happen to the property market if we decide to get out of the EU?


Existing the EU may lead to UK businesses being imposed with import tariff, which may affect profit and may affect jobs. EU exit may also affect London as a major financial centre. Banks, such as Deutsche Bank (which is the largest employer in the financial sector in London) may leave the UK. This could adversely affect the economy and, eventually, the property market.


The opposing view argues that each year the UK contributes about £4.6bn to the EU, which would be saved if we leave the EU. This would benefit the economy. Secondly, the UK runs a trade deficit with our EU friends to the tune of £3bn because we buy more EU goods than we sell to them. The bulk of our international trade are from countries outside the EU.


We have to wait and see whether we remain in the EU and the effect this could have on the property market.




(v) Changes to Stamp Duty

From 1 April 2016, stamp duty will be increased from 2% to 3% for second home worth £250,000 (higher stamp duty will be payable if the property price is more than £250,000). This would clearly affect the BTL market. However, the winners are the FTB, since this does not quite affect them.


(vi) Mortgage Interest Restriction

In the Summer Budget (2015), the Chancellor announced that restrictions would be placed on the amount of tax relief landlords could claim on mortgage interest. Most of Britain’s 2 million landlords have mortgages. Those of modest income will clearly be hit hardest by this change.


(vii) The Housing and Planning Bill 2015-16

This Bill heralds the intention of the government to build starter homes as part of the s106 agreement and, amongst others, speeding up the planning process with a view to delivering more housing. The Bill focuses on home ownership chiefly for FTB. If the purpose of this Bill is achieved, this would see more affordable homes built, and may temper property prices.


UK Property Market



In view of the above, what the future holds may depend of the economic actor concerned. As regards BTL investors, on the balance of probabilities, they may struggle in the immediate future. The introduction of the ‘Right to Rent’ requirement, the changes to stamp duty and the restrictions on mortgage interest relief may be steps too far. However, intelligent investors may swim (rather than sink).


As regards FTBs, they are likely to come out winners because of the introduction of ‘starter homes’, Help to Buy Scheme and the Help to Buy ISA. However, those FTBs who are unable to raise the deposits may not be able to benefit from these changes.


The Government and BOE position may remain unchanged. The government may achieve its goal because of the effect changes to stamp duty and mortgage interest may have on the BTL market. And the continuing fall of oil prices and deflation may prevent the BOE from hiking interest rates.

By Godwin Okri, author of “Investing in Property with Strategy” Amazon. £6.99 © 2016

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