UK Real Estate Market: Economic Current Situation and Forecast
In the United Kingdom (UK), the real estate industry includes buying, selling, renting, and operating either owned or leased land property. It also includes real estate activities that involve paying and contracting. The market divides into two sectors, commercial and residential. The Real Estate market is one of the most contributing sectors in the economy of the United Kingdom.
The real estate market (commercial subsector) in the United Kingdom is the biggest in Europe, following by France and Germany. Since 2016, investments in commercial property had increased over 500 billion pounds by the year 2018. Several factors influence the market dynamics of the real estate industry, such as the climate of the economy, the shift in supply and demand, etc., resulting in changing the availability, vacancy, costs of rent, etc.
Housing Market in the United Kingdom
The housing market in the UK had a positive history in 2020, even since the lockdown period. It seems that many people want to buy a new house or move to other places.
In October 2020, statistics showed that North England has a good reputation in the real estate market, having a vast number of renters increased their rent and house prices.
Various factors can affect the housing market in the UK, i.e., the recent pandemic crisis. Since there are lockdown rules and restrictions now, many people wish to buy their own house. Another example is the decrease in interest rates. Low-interest rates are favorable when property investors or homebuyers acquire a loan.
- Conditions of Housing Market in 2021
The price growth of UK houses in 2020 had an average increase of 7.3%. Savills (a real estate company in the UK) revised a predicted outcome of UK house growth in 2021, from the percentage of 0% – 4%. Since the UK has a low mortgage interest rate, it might attract and help homebuyers.
- Price Growth of UK houses for the Following Years
Savills predicts strong growth in UK housing prices. According to them, most sellers in other countries do not give up or sell their property for a low price.
The demand for buying a house will not decrease because new dwellings are slow down, and most people are doing work from home. This market behavior is making the housing prices increase, expectedly.
In 2022, strong price growth of UK houses is forecasted. Despite the predictions, though, the housing market is expected to cool down in the future. The cooling down may depend on economic growth. If the economic growth reduces, the price growth of UK houses might reach normal levels.
Nowadays, the prediction of UK housing prices is 4%. For the following years, it would be 5% (2022), 4% (2023), 3.5% (2024) and 3% (2025). Five years from now, house prices are expected to increase by 21.1%
- The Regional Growth is Strong for the Coming Years
Savills thinks that the south-east and eastern part of London will lead UK house price this year. Also, price growth is expected in places that are further away from the capital.
In 2022, Yorkshire, Humber, and the northwest part of England will lead having a 6% price growth of houses.
The expected significant increase from now to 2025 is in northwest England (28.2%), followed by Yorkshire and Humber with 28.2%. The largest growth in real estate is expected to be seen between 2021 to 2025, with a 28.8% rise in the northwest. Yorkshire and the Humber will follow closely with a projection of 28.2%.
Causes of Price Growth of UK Houses
- Strong buyers’ demand.
- Having a home during the pandemic period is important.
- The number of properties is slightly increased.
- Some London’s citizens migrate to other places such as Scotland and the northern part of England.
- Lower mortgage interest rates.
- Benefits of stamp duty holiday.
- Urgent need for a home during the pandemic lockdown.
- When the economy improves, some foreign buyers are willing to buy a home.
Statistics of UK Renters
The English Housing Survey in the UK reported 4.5 million people in England live in privately rented homes. At the same time, 4 million people live in socially rented homes.
According to the survey, most people who rent in private (71%) said it is easy to pay the rent with 33% of their income. While social renters have 28% and mortgagors have 17%.
The report stated the main reasons why tenants move in the last three years. First, it is job-related (18%), second is moving to a good neighborhood (16%), third is moving for larger space (13%), and 12% moved because of the request of the landlord.
63% of tenants who privately rent have no money saved, and 33% reported that they don’t have much savings. 58% of British renters said that they’d want to buy a home of their own. 77% of young Brits plan to buy sometime sooner, at some point in their life.
The Importance of the Housing Market in the UK Economy
When the prices of UK houses go up, most homeowners would probably feel more confident.
Conversely, when the prices of UK houses go down, homeowners would think that their home will have less worth, lesser than their mortgage. So, homeowners would practically stop spending money and start making some investments.
The most significant source of debt in UK households is a mortgage. So, if many people have loaned a larger amount of money, bigger than the value of their home or income, the banking system is at risk, affecting economic growth.