10 years on the credit crunch is still shaping the UK housing market

After a decade the credit crunch which sent the UK economy downward is still shaping the nation’s housing market, continuing to affect existing and aspiring home owners, new research suggests.

The effects of the economic crisis were dramatic and swift as the average UK house price dropped 20% over 16 months and sale, which had averaged 1.65 million over the previous 10 years, fell to just 730,000 in the 12 months to the end of June 2009.

In a new analysis report, The Global Financial Crisis 10 years on, property adviser Savills analyses the immediate and lasting impacts of the events of 2007 and 2008. It points out that while many segments of the market have recovered peak values, the reverberations of the global financial crisis is still have reverberations.

It explains that first time buyers are still heavily dependent on help from the Bank of Mum and Dad or the Government’s Help to Buy schemes to get on the housing ladder, existing owners struggle to move up the ladder, and the private rented sector has come into sharp focus as it becomes for many a much longer term housing solution.

The market is also more divided at a regional level than ever before and a huge gap has opened up between London and the rest of the UK. Since 2007, price growth in London has totalled 78%, double that seen in the South East and East, and at least four times that seen in all other regions. The average house price now stands at £478,142 in London, more than double the £209,971 UK average.

Wales, Yorkshire & Humberside and the North West are just into positive price growth 10 years on from the credit crunch, while values in the North East remain on average 9% down.

‘This has huge implications for mobility across the UK and also leaves affordability particularly stretched in London, with parallels in cities such as Oxford, Cambridge and Brighton,’ said Lucian Cook, Savills head of residential research.

‘Lower value commuter towns such as Slough, Stevenage and Harrow have also seen high price growth, as investors and home owners have looked to stretch their equity,’ he added.

The continued affects also relate to lending and finance in the housing market. The report says that lending at 90% loan to value now accounts for just 3.9% of all new mortgages, down from 14.1% in 2007 and only 1.2% of all lending is interest only, down from 32.5% a decade ago.

Constraints on mortgage lending means the deposit hurdle is very much higher now than it was in 2007. The average deposit raised by a first time buyer has increased by 109% to £26,224 across the UK as a whole while in London it is up 360% to £97,513.

First time buyer deposits totalled £10.2 billion in the year to the end of March 2017, an increase of 85% over 10 years. Savills estimates that £4.2 billion, around 41%, comes from parental or Government backed funding.

‘Lending constraints look set to be a lasting legacy of the credit crunch, meaning the market will continue to favour more valuable, equity rich markets. Without the help of the Bank of Mum and Dad and Help to Buy, home ownership would be beyond the reach of a great many more aspiring home owners. We do not envisage this changing,’ Cook explained.

The analysis also points out that a more constrained mortgage lending environment means that fewer home owners are able to trade up the ladder. In 2007 one in 15 existing home owners moved home, a figure that has fallen to one in 27. Over the past 10 years there have been some 3.8 million fewer such home moves by those needing a mortgage than in the previous decade.

‘Long gone are the days when interest only borrowing would allow home owners to make frequent moves up the ladder. Over one in three mortgages in 2007 were interest only, some 343,200, but they have now all but disappeared, down to just 8,000 in the past year, said Cook.

There has also been a squeeze on buy to let. In the year to March 2016, buy to let lending was effectively back to where it was pre credit crunch, as landlords saw an opportunity in rising house prices and growing demand from those excluded from home ownership. However, increases in stamp duty and restriction on tax relief on interest payments have curtailed investor appetite and borrowing has halved.

In the short term, Savills expects the market to be driven by sentiment, with price growth continuing to be suppressed by the prevailing political and economic uncertainty. ‘As rates rise, affordability will be squeezed further, particularly in London, and stress testing of borrowing will act as a drag on house price growth,’ Cook added.

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