The Biggest Problems in the UK Housing Market

Boom and bust is becoming a regular feature of the UK housing market, as history repeats itself. The boom of the late 1980’s lead to mortgage interest rates surpassing 14% and an inevitable bust in the early 1990’s as house prices fell. In 1989 house prices were 27% above usual trends and the current peak exceeded that figure with inflated prices being 41% above normal levels of expected growth. The result is major problems in the UK housing market which have been fuelled by these boom and bust cycles.

Research conducted by YouGov on behalf of the UK Council of Mortgage Lenders showed that 96% of UK residents believe there are housing problems, with 80% citing the biggest problem relating to first time buyers. With the current average deposit of £34,000 required on a home, statistics show that it will take 18 years of savings by the average 25 year old before they are able to think of purchasing a home. The average age of the first time buyer is now 37, which reflects the current difficulties in actually obtaining a mortgage in an ever shrinking mortgage market.

Although social trends play their part in first time buyers being older than in other generations, lack of mortgage vehicles is the biggest issue facing them. The aspirations to own their own home are still there but 80% simply cannot afford to buy. This of course has a knock on effect on the housing market as a whole, as first time buyers have traditionally purchased the homes of those ready to take the next step on the property ladder.

As mortgage lending becomes more regulated by the FSA, mortgage lenders are increasingly constrained, though in general most people support tighter lending criteria. Boom and bust itself is cited as a big problem within the UK housing market, along with the lack of supply of new houses.

33% perceive that private landlords are squeezing out first time buyers, yet renters find there is too little choice of private rentals. Buy to let mortgages are in decline although it is apparent that as first time buyers cannot afford to buy there will be an ever increasing demand for private rentals.

Whilst private renters often want the flexibility of being able to move, 22% of those in social housing cite the difficulty of being able to move as a big problem. As a demonstration of green issues rising in people’s awareness, 25% believe that existing homes are not energy efficient.

Without doubt the biggest problem is seen as the inability of first time buyers to get on to the property ladder, whilst concerns about competition in the mortgage market being squeezed out by the dominance of major lenders remains unaddressed. The expected difficulties which current home owners will experience if needing to move or refinance does not appear to have been considered a problem which will become inevitable if mortgage lending continues to shrink as predicted.

Sources: The Council of Mortgage Lenders

               The Economic Journal