A decade ago, in October 2009, the average house price in the UK was £166,425 and the UK House Price index stood at 87.29. Ten years later, in October 2019, the average house price in the UK had risen to £232,944 (an increase of c.40 per cent over the decade) and the UK House Price index stood at 122.17 (see tables 1 & 2).
As can be early seen from these charts, sourced via the government’s own land registry data, despite some slight bumps in the road, UK property prices have steadily increased year-on-year over the past decade.
Table 1. Source: Land Registry
Table 2. Source: Land Registry
Are house prices likely to continue to rise?
So how can we find out what is likely to happen to UK house prices in this new decade, the 2020s? Maybe historical data can help.
Although it may not have seemed like it of late, with the property market being flat due to all the Brexit uncertainty, house prices have been on the rise for decades.
Using government land registry data to do a decade-by-decade comparison, we found ourselves viewing statistics as far back as October 1969 (table 3) when the average UK house price was an incredible £3,899 – as cheap as a second-hand car today! (Don’t we wish there were some bargains around like this today… We did find several houses for £50K or less in one of our investigations, though…).
Table 3. Source: Land Registry
The next decade, the 70s, brought substantial house price growth; by the end of the decade (October 1979), the average UK house price had risen by 375 per cent to £18,542. The 80s were another decade of growth; by the decade’s end (October 1989), prices had jumped another 221 per cent to a new high of £59,533. However, in the 1990s, the average house price rose by a mere c.38 per cent to £82,504 (in October 1999) following a market slump early on in the decade, then in the 2000s prices recovered and rocketed by c.102 per cent to £166,452 (as of October 2009). And finally, in the 2010s prices rose modestly by c.40% to £232,994 (as of October 2019).
These figures show average prices rising each decade. The table above also clearly shows how the UK property price growth slowed in the early 1980s, then recovered, and soared, in the late 80s. Prices then dipped again in the 1990s, when the average house price fell from £60,701 in July 1989 to £53,213 in October 1992; they then peaked again at a high of £190,032 in September 2007. House prices suddenly plummeted late in 2007 when prices dropped from a high of £190,032 in September 2007 to a low of £154,452 in March 2009; they then steadily grew in the following decade, which takes us to today.
These price rises are good news for homeowners and property investors as they will likely see the value of their portfolio grow and not be catapulted into negative equity any time soon. However, continued house price growth isn’t great for everyone, including first-time buyers.
What about first-time buyers?
According to new research by the Nationwide Building Society, house price growth has continued to exceed earnings growth, resulting in a further rise in the house price earnings ratio. At the end of 2019, the UK First Time Buyer (FTB) house price to earnings ratio stood at 5, close to 2007’s record high of 5.4, and up from 4.4 at the end of 2009.
As house prices increase, getting on the property ladder for first-time buyers, particularly in the Capital, becomes more and more challenging.
Andrew Harvey, Nationwide’s Senior Economist, explained the difficulty of further increases in the house price earnings ratio: “One of the consequences of high house prices relative to earnings is that it makes raising a deposit a significant challenge for prospective first-time buyers. Indeed, at present, a 20% deposit is currently equivalent to the entire pre-tax income of an average earner, up from 88% a decade ago.”
However, the government has recently announced a raft of new measures designed to help more people own their own homes with discounts for first-time buyers, local residents and key workers on the cards. It has also announced plans to abolish leaseholds on new properties and to make buying a freehold or extending a lease easier, quicker and more cost-effective. We hope these measures will help more people realise their dreams of owning their own home.
Will the upward trend continue?
Although the UK property market data shows a pattern of peaks and troughs, as we have demonstrated above, overall prices continued to rise over the past five decades. So, will this rhythm of peaks and troughs – with an overall upward trend – continue throughout the next decade? We believe so… that’s if mortgages continue to be as affordable and interest rates remain as low. We will never know for sure if or when the head of the Bank of England will decide to raise interest rates, but even if he does, we suspect the increases will be gradual and manageable, thus providing market stability, and long-term house price increases, for the foreseeable future.