UK housing market

The underlying conditions of the UK housing market are positive; home ownership is still the tenure of choice for the vast majority of people, and the government’s ambition to address the long-term undersupply of new homes is being matched by good levels of support for the housebuilding sector.

The market has bounced back very strongly from the shutdown in 2020, with an increase in house prices and transaction volumes on pre-pandemic levels.

However, shortages of materials and labour are leading to build cost inflation and could hinder the ability of the industry to reach the government target of 300,000 new homes per year in England.

Housing supply

The most reliable statistics on new housebuilding indicate that 220,598 new homes were built in England in the year to March 2020 (2018-19: 214,413), taking the total annual housing supply to 243,770¹. These new homes are needed to address the historic undersupply of housing.

The best leading indicator of new housing supply is the number of new Energy Performance Certificates issued, which are mandatory for all new homes. 251,000 of these were issued in the year to June 2020, meaning that the supply of new housing has recovered to pre-pandemic levels².

Measures of housing supply, England

(1) Data source: NHBC

New build completions

Government Support

In April 2013, the government launched its Help to Buy Equity Loan scheme to help more people into home ownership. The scheme sees the government provide a loan of up to 20% of the value of a new build property, rising to 40% in London. The scheme ran until March 2021, since when it has been restricted to first-time buyers, and subject to regional price caps. The scheme will then end in 2023.

328,506 homes were bought using the original scheme, with 82% of them being bought by first-time buyers, and 77% of being purchased for less than £350,000³. Help to Buy has been successful in both stimulating supply and creating effective demand.

The number of housing transactions in the UK has exceeded pre-pandemic levels, with 1.25 million purchases in the year to June 2021 – the highest level since 2008⁴.

England housing transactions (MAT)

Mortgage availability

The availability of high-LTV mortgages fell in the immediate aftermath of the pandemic. Levels have largely recovered, but lenders are still generally unwilling to lend at 90+% LTV on new build properties.

Interest rates spiked in summer 2020, and while rates on lower-LTV products have returned to previous levels, they are still higher for higher LTVs. The standard rate on a 90% LTV mortgage is still 60 bps above where it was in March 2020⁵. However, the Bank of England looks set to maintain keep its base rate at an historically low level for the foreseeable future, mitigating the scope for further household rate increases.

Monthly interest rate of 2 year fixed rate mortgages by LTV ratio

(1) Data source: Bank of England.
(2) Monthly interest rate of UK monetary financial institutions (excl. Central Bank) sterling 2 year (75% LTV) fixed rate mortgage to householders (%), not seasonally adjusted
(3) Monthly interest rate of UK monetary financial institutions (excl. Central Bank) sterling standard variable rate mortgage to households (%), not seasonally adjusted

House prices

House prices have responded positively to the relaxation and removal of COVID-19 restrictions, and have grown across the country. This is due to a combination of accrual of savings during lockdown, the desire for more space and the government’s stamp duty holiday⁶.

UK house price growth

(1) Data source: Halifax

With the current attractive interest rate environment, mortgage affordability metrics are running below historic averages. The Halifax affordability review currently estimates that people spend around 29% of their disposable income on mortgage repayments, significantly below the long term average¹.

Halifax Mortage Affordability Index

color	x	y	average	prefix	postfix
#5b9bd5	1985 Q1	36.2	32.7
#5b9bd5	1985 Q2	37.8	32.7
#5b9bd5	1985 Q3	35.3	32.7
#5b9bd5	1985 Q4	34.8	32.7
#5b9bd5	1986 Q1	34.7	32.7
#5b9bd5	1986 Q2	32.0	32.7
#5b9bd5	1986 Q3	32.4	32.7
#5b9bd5	1986 Q4	34.7	32.7
#5b9bd5	1987 Q1	34.5	32.7
#5b9bd5	1987 Q2	33.9	32.7
#5b9bd5	1987 Q3	34.6	32.7
#5b9bd5	1987 Q4	34.4	32.7
#5b9bd5	1988 Q1	35.2	32.7
#5b9bd5	1988 Q2	36.0	32.7
#5b9bd5	1988 Q3	42.9	32.7
#5b9bd5	1988 Q4	51.2	32.7
#5b9bd5	1989 Q1	54.0	32.7
#5b9bd5	1989 Q2	55.0	32.7
#5b9bd5	1989 Q3	53.7	32.7
#5b9bd5	1989 Q4	55.2	32.7
#5b9bd5	1990 Q1	56.2	32.7
#5b9bd5	1990 Q2	56.4	32.7
#5b9bd5	1990 Q3	55.2	32.7
#5b9bd5	1990 Q4	51.8	32.7
#5b9bd5	1991 Q1	49.3	32.7
#5b9bd5	1991 Q2	43.9	32.7
#5b9bd5	1991 Q3	40.4	32.7
#5b9bd5	1991 Q4	38.8	32.7
#5b9bd5	1992 Q1	36.2	32.7
#5b9bd5	1992 Q2	33.9	32.7
#5b9bd5	1992 Q3	32.4	32.7
#5b9bd5	1992 Q4	27.9	32.7
#5b9bd5	1993 Q1	25.6	32.7
#5b9bd5	1993 Q2	24.9	32.7
#5b9bd5	1993 Q3	25.0	32.7
#5b9bd5	1993 Q4	24.4	32.7
#5b9bd5	1994 Q1	23.7	32.7
#5b9bd5	1994 Q2	24.3	32.7
#5b9bd5	1994 Q3	23.9	32.7
#5b9bd5	1994 Q4	23.5	32.7
#5b9bd5	1995 Q1	23.8	32.7
#5b9bd5	1995 Q2	23.9	32.7
#5b9bd5	1995 Q3	23.2	32.7
#5b9bd5	1995 Q4	22.5	32.7
#5b9bd5	1996 Q1	22.0	32.7
#5b9bd5	1996 Q2	21.7	32.7
#5b9bd5	1996 Q3	21.7	32.7
#5b9bd5	1996 Q4	22.5	32.7
#5b9bd5	1997 Q1	23.6	32.7
#5b9bd5	1997 Q2	24.1	32.7
#5b9bd5	1997 Q3	25.2	32.7
#5b9bd5	1997 Q4	25.8	32.7
#5b9bd5	1998 Q1	26.0	32.7
#5b9bd5	1998 Q2	26.1	32.7
#5b9bd5	1998 Q3	26.1	32.7
#5b9bd5	1998 Q4	26.0	32.7
#5b9bd5	1999 Q1	26.4	32.7
#5b9bd5	1999 Q2	25.8	32.7
#5b9bd5	1999 Q3	26.5	32.7
#5b9bd5	1999 Q4	27.9	32.7
#5b9bd5	2000 Q1	29.3	32.7
#5b9bd5	2000 Q2	30.3	32.7
#5b9bd5	2000 Q3	30.2	32.7
#5b9bd5	2000 Q4	30.4	32.7
#5b9bd5	2001 Q1	30.6	32.7
#5b9bd5	2001 Q2	30.3	32.7
#5b9bd5	2001 Q3	30.0	32.7
#5b9bd5	2001 Q4	29.1	32.7
#5b9bd5	2002 Q1	29.2	32.7
#5b9bd5	2002 Q2	30.1	32.7
#5b9bd5	2002 Q3	31.4	32.7
#5b9bd5	2002 Q4	33.0	32.7
#5b9bd5	2003 Q1	33.5	32.7
#5b9bd5	2003 Q2	34.1	32.7
#5b9bd5	2003 Q3	34.2	32.7
#5b9bd5	2003 Q4	35.2	32.7
#5b9bd5	2004 Q1	34.9	32.7
#5b9bd5	2004 Q2	37.1	32.7
#5b9bd5	2004 Q3	39.7	32.7
#5b9bd5	2004 Q4	40.3	32.7
#5b9bd5	2005 Q1	40.1	32.7
#5b9bd5	2005 Q2	39.6	32.7
#5b9bd5	2005 Q3	39.1	32.7
#5b9bd5	2005 Q4	38.6	32.7
#5b9bd5	2006 Q1	39.2	32.7
#5b9bd5	2006 Q2	39.4	32.7
#5b9bd5	2006 Q3	40.6	32.7
#5b9bd5	2006 Q4	42.4	32.7
#5b9bd5	2007 Q1	43.9	32.7
#5b9bd5	2007 Q2	45.2	32.7
#5b9bd5	2007 Q3	46.4	32.7
#5b9bd5	2007 Q4	46.3	32.7
#5b9bd5	2008 Q1	44.9	32.7
#5b9bd5	2008 Q2	41.6	32.7
#5b9bd5	2008 Q3	40.1	32.7
#5b9bd5	2008 Q4	34.7	32.7
#5b9bd5	2009 Q1	30.3	32.7
#5b9bd5	2009 Q2	30.3	32.7
#5b9bd5	2009 Q3	31.1	32.7
#5b9bd5	2009 Q4	31.5	32.7
#5b9bd5	2010 Q1	30.9	32.7
#5b9bd5	2010 Q2	30.8	32.7
#5b9bd5	2010 Q3	30.3	32.7
#5b9bd5	2010 Q4	29.6	32.7
#5b9bd5	2011 Q1	29.1	32.7
#5b9bd5	2011 Q2	29.3	32.7
#5b9bd5	2011 Q3	28.7	32.7
#5b9bd5	2011 Q4	28.2	32.7
#5b9bd5	2012 Q1	28.5	32.7
#5b9bd5	2012 Q2	28.9	32.7
#5b9bd5	2012 Q3	28.9	32.7
#5b9bd5	2012 Q4	28.6	32.7
#5b9bd5	2013 Q1	27.8	32.7
#5b9bd5	2013 Q2	27.4	32.7
#5b9bd5	2013 Q3	27.6	32.7
#5b9bd5	2013 Q4	28.0	32.7
#5b9bd5	2014 Q1	28.6	32.7
#5b9bd5	2014 Q2	29.1	32.7
#5b9bd5	2014 Q3	30.0	32.7
#5b9bd5	2014 Q4	29.9	32.7
#5b9bd5	2015 Q1	28.9	32.7
#5b9bd5	2015 Q2	29.0	32.7
#5b9bd5	2015 Q3	29.4	32.7
#5b9bd5	2015 Q4	29.8	32.7
#5b9bd5	2016 Q1	30.1	32.7
#5b9bd5	2016 Q2	30.0	32.7
#5b9bd5	2016 Q3	29.6	32.7
#5b9bd5	2016 Q4	29.4	32.7
#5b9bd5	2017 Q1	29.1	32.7
#5b9bd5	2017 Q2	28.9	32.7
#5b9bd5	2017 Q3	28.8	32.7
#5b9bd5	2017 Q4	28.7	32.7
#5b9bd5	2018 Q1	29.1	32.7
#5b9bd5	2018 Q2	29.1	32.7
#5b9bd5	2018 Q3	29.1	32.7
#5b9bd5	2018 Q4	29.2	32.7
#5b9bd5	2019 Q1	29.2	32.7
#5b9bd5	2019 Q2	28.9	32.7
#5b9bd5	2019 Q3	28.6	32.7
#5b9bd5	2019 Q4	28.4	32.7
#5b9bd5	2020 Q1	28.4	32.7
#5b9bd5	2020 Q2	27.8	32.7
#5b9bd5	2020 Q3	28.3	32.7
#5b9bd5	2020 Q4	28.9	32.7
#5b9bd5	2021 Q1	29.1	32.7
#5b9bd5	2021 Q2	29.5	32.7

Outlook

Overall, despite the impact of COVID-19, the outlook for the housing market continues to be positive, with supportive government schemes and historically low interest rates for mortgages. Underlying demand for new housing is expected to remain strong in the long term, and while industry output has improved in the last few years, there is still a legacy of undersupply in the market.

1 https://www.gov.uk/government/statistical-data-sets/live-tables-on-net-supply-of-housing
2 https://www.gov.uk/government/statistical-data-sets/live-tables-on-energy-performance-of-buildings-certificates
3 https://www.gov.uk/government/collections/help-to-buy-equity-loan-and-newbuy-statistics
4 https://www.gov.uk/government/statistics/monthly-property-transactions-completed-in-the-uk-with-value-40000-or-above
5 https://www.bankofengland.co.uk/statistics/visual-summaries/quoted-household-interest-rates
6 https://www.gov.uk/government/statistical-data-sets/uk-house-price-index-data-downloads-june-2021; https://www.nationwidehousepriceindex.co.uk/resources/f/uk-data-series; https://www.halifax.co.uk/media-centre/house-price-index.html