UK Residential Property Cycle Bubble to Burst to Bubble

Published / Last Updated on 15/02/2024

So often we are asked what we think will happen to property prices in the UK.  Are property prices going up or down?  To try and get a better perspective, we looked at property prices since the World War II.

  • 1950s - average UK property price £1,900 (around £81,600 today).
  • 1960s - average UK property price £2,200 (around £63,500 today).  Technically a fall over 10 years as millions of council and private homes were build in the 1950s to deal with the ‘baby boomers’.
  • 1970s - average UK property price £4,400 at the start of the decade (around £85,300 today) and up nearly 5 X fold by the end of the decade at £22,000 (around £118,300 today) due to higher inflation and then higher wages.
  • 1980s - the Thatcher years, with average UK property price £22,000 at the start of the decade (around £85,300 today) and nearly trebled by the end of the decade at £60,000 (around £170,000 today) due again to higher inflation and higher wages as well as Mrs Thatcher’s ‘right to buy’ your council house scheme fuelling an even bigger property boom that expected.
  • 1990s - huge interest rate increases in 1989, at the start of decade the 1990s average £60,000 (around £170,000 today) into a property recession but then recovery by the end of the decade at £75,000 (around £158,000 today)
  • 2000s - another massive increase in house prices due to low interest rates and higher wages pushed the average house price up by September 2007 to £190,000 (around £330,000 today).  The property stampede in the early ‘noughties’ led to excessive over lending, toxic debt and the credit crunch crisis.
  • 2010s - average UK property price £167,000 at the start of the decade (around £268,000 today) as we pulled out of the credit crunch crisis and then with a decade of lower interest rates, average property prices flatlined between 2016-2919 but still increased to £230,000 by 2020.
  • 2020 - covid 19, lockdown and pent-up demand with extremely low interest rates and people scrambling to the coast or countryside pushed prices up over £300,000 and then fell back to £285,000 by December 2023, due to higher interest rates and the cost-of-living squeeze.
  • Property prices starting to recover a little early in 2024.
  • Source:  Office for National Statistics, Halifax Property Index and Nationwide Property Index.

What did we learn about UK property prices and the future?

Interest rates and wages inflation drive property prices as you would expect but an interesting point is:

  • The property cycle seems to be upwards for most of the time as demand increases with a growing population and higher wages.
  • Every 15 years or so there is a property price decline and sometimes a full blown ‘crash.
  • Property prices have always recovered over a few years after any blip.
  • Property is a good inflation hedge.  When wages rise, property rises.We are simply not building enough homes, so demand outstrips supply.

We are in a period of higher interest rates (but no higher than they have averaged over the last 70 years), so technically we have average interest rates.  Wage increases are now higher than inflation, so this will drive property prices up again, but the bubble will eventually burst.

Governments want and need a healthy property market for stamp duty, CGT, IHT, Help to Buy Equity Loan revenues as well as no toxic debts for banks and they always seem to intervene in times of difficulty e,g., Thatcher’s MIRAS (mortgage interest relief at source) where tax relief was granted on interest paid on the first £30,000 of a mortgage in the early 1980s, Help Buy to Buy Scheme in 2013 and stamp duty holidays during and after covid-19 lockdown. 

There is even talk today of a 1% deposit mortgage scheme to be underwritten by the government in the March 2024 budget, underpinning a government need for a buoyant property market.

In the words of Mark Twain “buy land, they’re not making it anymore”. 

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