Is the UK property market reaching the end of the boom period?

UK house prices increased by an average of 12.4% in 2022, sustaining a trend of rising prices that has been in play since 2012 – a boom by anyone’s measures. We’re familiar with the reasons for this; the Stamp Duty holiday, lack of supply, record low interest rates on fixed year deals, lockdown generating excess cash etc. Aside from lack of supply, all those other aspects are no longer in play. The question now is whether the good times might be coming to an end and as an investor, and what that means for your portfolio construction.

If we look at the area immediately after the 2007 crash, we can see prices decreased by 15% as banks reined in mortgage offers, drove rates up and the market was forced to adjust. We can see it rebounding strongly, but this isn’t the only time a global slowdown has had a profound impact on prices.

The end of the 1980s saw a gradual decline with prices falling by around 12% between September 1989 and October 1992 but alarmingly, prices didn’t fully bounce back until April 1997.

Inflation and monetary policy are driving the main sentiments behind this article. Borrowers on fixed rates are going to be faced with new, much higher, rates when they come to remortgage at the same time as inflation hitting double figures and a cost-of-living crisis emerging. If any market could defy such forces it would be the UK housing market, which has proven remarkably resilient, but assets look expensive compared to others at the moment.

“Although rates are going up, they are still cheap by historic standards”, is often a line trotted out at this point. However, the cost of property has increased significantly since those days, so the sheer amount repayable could be out of reach for borrowers, especially those at the bottom of the ladder. Policy to open up 50-year mortgages, mooted by Boris Johnson’s government recently, appear to be papering over the cracks at best and would be a millstone for borrowers. Government intervention in the market has certainly been a key factor in rampant price inflation, so ministers might be advised to leave it alone for a little while to prevent the situation getting worse.

Elsewhere, the buy to let market has suffered a series of policy blows in recent years with changes to tax relief, tightening of lending criteria and increases in stamp duty for second purchases. As prices have increased, the value of becoming a landlord in the first place has been questioned and is increasingly the preserve of businesses and professional landlords in order to deal with the taxation impact.

Inflation and the cost-of-living crisis is likely to open up new areas of concerns for landlords as tenants feel the bite, while rising mortgage rates and the cost of labour and materials will all make renovating property harder to yield a profit.

There’s ample evidence to suggest that buying a property instead of renting is advantageous in the long run and it may be that we will see a rebound like we did in 2009/10, but for people with all their eggs in the UK property market basket either directly or via property funds, now might be the time to consider alternative investment sources to diversify their portfolio and guard against shocks.


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