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Antony Antoniou – Luxury Property Expert

The UK’s Housing Market: Exploring Affordability Challenges and Potential Decline

The UK’s Housing Market: Exploring Affordability Challenges and Potential Decline


Housing affordability has been a persistent issue in the UK, with skyrocketing house prices far outpacing wage growth. Last year, the average cost of a house reached its highest point since 1876, standing at nine times the average salary. In areas like London, the situation was even more dire, with houses costing around 13 times the average salary. However, recent developments in the housing market, such as rising interest rates and mortgage costs, have led to a decrease in demand, resulting in a significant drop in house prices. In this blog post, we will delve into the UK’s current housing crisis, exploring the reasons behind falling prices and examining the potential for further decline.

The UK’s Housing Crisis:

The housing crisis in the UK has had far-reaching implications. Historically, the ratio between the median house price and median income was around four, meaning the median house typically cost four times the median annual salary. However, the current average house price in the UK stands at nine times the average salary, surpassing 12 times in London. This exacerbates intergenerational inequality, favoring wealthier older homeowners while disadvantaging the younger generation. Additionally, it contributes to wealth inequality by limiting home ownership opportunities for those without affluent parents. Currently, over 50% of first-time buyers under 35 rely on financial support from their parents, a figure that rises to approximately 75% in London and the southeast. Furthermore, the housing crisis negatively affects the economy, as excessive expenditure on housing reduces the funds available for productive activities.

Factors Contributing to the Housing Crisis:

Several factors have contributed to the housing crisis in the UK. Stagnant wages, the impact of green belt policies, a complex and inconsistent planning system, the dominance of large volume builders, the scarcity of social housing, and the well-known right-to-buy schemes have all played a role in driving up house prices. Low interest rates prevalent during the 2010s have also contributed by making mortgages more affordable and increasing pressure on the market.

Rising Interest Rates and Impact on House Prices:

However, the recent rise in global inflation has led central banks, including the Bank of England, to increase interest rates to mitigate inflationary pressures. This has affected the housing market in two ways. Firstly, borrowing money and obtaining mortgages have become more expensive, reducing housing demand. Secondly, servicing existing mortgages has become costlier, potentially leading to increased housing supply. Approximately 25% of homeowners in the UK have variable rate mortgages, which are tied to changes in interest rates. As rates rise, these mortgage holders face higher expenses, prompting some to sell their properties and downsize to more affordable options. This increase in housing supply further contributes to the downward pressure on prices, particularly in areas like London where a significant portion of income is allocated to mortgage costs.

Current Trends and Future Predictions:

As demand decreases and supply increases, house prices in the UK have started to decline. The downward trend began in September of the previous year and has persisted since then. Between February and March, there was a further decrease of 0.8% in house prices, bringing the total decline to around 6% since the peak in August. Unfortunately for homeowners, it is widely expected that house prices will continue to fall in the upcoming months. The Office for Budget Responsibility (OBR) projects a 10% decrease in house prices in 2024, while both Lloyds and Halifax predict an 8% decline in 2023. However, it’s important to note that UK house prices are still significantly higher than their pre-pandemic average, indicating that they remain above historical norms.

The Impact of Energy Prices and Inflation:

The recent announcement of production cuts by OPEC Plus adds another layer of risk to the UK housing market. High energy prices, particularly elevated oil prices, often lead to inflationary pressures. Factors such as the conflict in Ukraine and disruptions to energy supplies, primarily influenced by Russia, have been major drivers of record inflation in Europe. High energy costs increase household spending and tend to elevate the prices of other goods and services. For example, agriculture heavily relies on energy, and when energy costs rise, it leads to increased food prices. If high energy prices and inflation unfold, the Bank of England may be compelled to raise interest rates even further, resulting in more pronounced declines in housing prices.


The UK’s housing market faces multiple risks, including the unpredictable nature of OPEC Plus and the challenging task of managing inflation. The future trajectory of these factors remains uncertain, but it’s important to acknowledge the vulnerabilities present in the UK housing market. While market sentiment appears relatively calm regarding these potential developments, the uncertainty surrounding energy prices adds another layer of risk. The expectation of higher energy prices, particularly oil prices, implies the likelihood of increased inflation, leading to further declines in housing prices. It is crucial to closely monitor these factors and their potential impact on the housing market going forward.


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