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The UK housing market presents a mixed picture across the country

Friday 1st April 2016

Written by Martin Upton

The latest data from the Office for National Statistics (ONS) show average in England house prices rising by 8.6% in the year to the end of January 2016. The figures confirm that the cooling in house price inflation seen in mid-2015 was only temporary.
The ONS data do, though, show marked differences in house price movements across the UK regions. Predictably London and the South-East saw the highest rises of 10.8% and 11.7% respectively, with the East of England seeing average prices up by 9.8%. But in Scotland prices rose by only 0.1% and in Northern Ireland by 0.8%. In Wales average prices actually fell by 0.3%. Clearly the ‘boom’ in the housing market is not shared across the country as a whole.
The differences in regional house price movements are simply a result of different demand and supply conditions, with the shortage of property in London and the South East relative to the demand generating a seemingly inexorable upward movement in prices. Underpinning the general upward trend in prices across the country is the availability of cheap home loans – with both fixed and variable rate mortgage rates at historic lows. The fragility of the economy means that these rates will not rise markedly in the foreseeable future. Also supporting the strong performance of the housing market has been the growth - albeit modest - in real incomes in the last two years.
So most property owners continue to do well, with their wealth pushed upwards as higher prices boost the equity held in their properties. For those trying to get on the housing ladder, though, the upward spiral in house prices is viewed with dismay. Home ownership in the UK has fallen from 73% of households in 2003 to 65% currently.
This fact, together with the rising average age at which people buy property, paint a picture of a generation of adults struggling to get onto the housing ladder. 
In time the ‘Lifetime ISA’ initiative announced in last week’s budget and starting in April 2017 may help. This allows those aged between 18 and 40 to save up to £4,000 a year in this tax-free product, with the government providing a top-up of £1 for every £4 saved. One intention of Lifetime ISAs is to provide the means to build up the deposit needed for property purchase. Whilst the intention is good the reality may be that such additional financial firepower will be reflected in even higher property prices rather than an increase in home ownership. 
Dealing with the decline in home ownership really needs a sharp increase in the supply of property – particularly in London and the South-East – since only this will stop the continued upward trend in property prices and thereby help make property purchase more affordable.
*Martin Upton is Director of the True Potential Centre for the Public Understanding of Finance (True Potential PUFin)

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