UK housing market returns to its pre-pandemic size

uk-housing-market-returns-to-its-pre-pandemic-size

The UK housing market returned to its pre-pandemic size in the year to March 2024, fresh analysis from Savills shows.

Overall, the total value of the UK housing market contracted by 21% in the year to March 2024, on the back of lower levels of market activity. This has taken it back to its pre-pandemic size of £342bn.

At the height of the mini housing market boom it temporarily peaked at £521bn, according to Savills research.

While the UK housing market is now the same size as it was pre-pandemic, its make-up looks different. Overall there were 15% fewer completed transactions compared with the year to March 2020, but this has been offset by 17% higher average sale prices.

“The contraction of the market primarily reflects the impact that the higher costs of mortgages have had on the appetite of buyers to take on more debt, with mortgaged home movers and buy-to-let investors particularly affected,” said Lucian Cook, head of UK residential research at Savills. “Demand from equity-rich buyers has been more robust. And that from first-time-buyers has stood up surprisingly well, albeit heavily supported by the Bank of Mum and Dad.”

The study found that some £20.7bn (13%) less mortgage debt was used to buy homes in the year to March 2024 compared to four years earlier. But, a fall in the use of debt was offset by an 11% rise in use of equity.

An increase in the use of equity was specifically fuelled by a 19% increase in spending by cash buyers over four years. Spending among those cash buyers stood at £144bn in the year to March.

This is the equivalent to 42% of the total spend on house purchases across the UK.

Chart 1: Size of the UK Housing Market £m

£m Yr to Q1 2024 Yr to Q1 2020 Change % Change
First Time Buyer Debt 56,960 58,927 (1,967) -3%
Home Mover Debt 67,073 82,563 (15,491) -19%
Buy to Let Debt 8,719 11,945 (3,226) -27%
All Debt 132,752 153,436 (20,684) -13%
First Time Buyer Debt 17,366 17,353 13 0%
Home Mover Equity 44,028 45,382 (1,353) -3%
Buy to Let Equity 4,291 5,258 (967) -18%
Equity on Mortgaged Purchases 65,686 67,993 (2,307) -3%
Cash Buyer Spend 143,967 121,407 22,560 19%
Total 342,405 342,836 (431) 0%

Source: Savills using data from HMRC, ONS, BoE and HMLR

So what’s next for the UK housing market?

“Interest rate cuts will mean that the range of buyers coming to the market will widen, and we can expect to see their spending power pick up over the next 12 months,” continued Cook. “Those who have put off plans to trade up the housing ladder over the past two years are likely to underpin growth in the housing market going forward.”

“Though the headwinds haven’t completely died down, we have already seen a pick-up in agreed sales on the back of more stability in the mortgage markets. That suggests that as rates fall, the market will return to growth, despite owners who are yet to come to the end of their fixed rate experiencing an uplift in underlying their housing costs.”

Savills mainstream forecast expects house prices to grow 2.5% in 2024, primarily due to falls in the cost of mortgage debt, and 21.6% by the end of 2028.

Housing transactions are forecast to reach 1.05 million in 2024, slightly up from the 1.01 million forecast at the back end of last year.

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