An Introduction to the UK Housing Market

UK Housing Market

The UK housing market comprises three main types:

Privately owned and occupied houses and apartments
Privately and local authority rented accommodation
Housing association managed properties

In 1996, there were 23.87 million households in the UK, which grew to 27.23 million by 2016. In this period, local authority house holdings have steadily declined whereas private renting and housing association schemes have increased.

In the start of the twentieth century, just over 9% of the total number of homes were owner-occupied. However, a hundred years later, in the early 21^st century, it had risen to about 62%. For comparison, this is a little above the European Union average.

Privately owned property

There are two types of private property in the UK: freehold or leasehold. Freeholder owners hold both the land and the property in question. Leaseholders, on the other hand, do not own the land but instead purchase the right to use land and property for a specified period, often over one hundred years.

As time passes by, the time remaining on the lease reduces, and when it comes to an end, the land and property go back to the landlord owner. For leases with less than 60 years left, leaseholders are often offered the opportunity to buy extensions on the lease.

Property that is privately rented

Landlord owners rent out their property via tenancy contract agreements, often with intervals of 6 or 12 months, and usually with the option for renewal when the tenancy has come to an end. Tenants can find various payment options and periods, but the typical scenario is by monthly payments, with some including the bills built into the rent.

Mortgages

Mortgages are loans specifically used to buy freehold and leasehold property. Depending on what terms the lender is willing to offer, these loans typically last for about 25 years. Loan repayments are made to pay both the capital and the interest. Specialised mortgages, such as buy-to-let mortgages, can be purchases that require interest-only payments until the end of the mortgage term, with the capital repayment being made at the end.

Local authority rented property

Local authority rented property is usually cheaper to rent compared to the private sector, thanks to being subsidised by public money. Rent can be paid both weekly and monthly and is allocated based on individual circumstances. Waiting lists for being housed can often take some time due to a lack of available housing stock owned by the local authority.

Housing Association properties are typically low-cost and comprise part-buy and part-rent occupancy.

New builds and existing stocks

Most hoses sold in the UK are from existing stocks changing hands, with newly built houses comprising about 5% of total sales. This clearly shows how important the second-hand UK housing market is to the economy, transactions that involve buying “old” or “modern” property. Old property is property that was built before World War Two, whereas modern property was built post-1945. From a long-term perspective, a key driver of house price inflation is the scarcity of housing stock. In recent times, with the pandemic, the rising cost and shortages of building materials and difficulties with shipping, this upward price inflation trend is likely to only be exasperated.

The UK Housing market and the economy

The UK housing market is vital to the UK economy for two principal reasons:

Since housing is typically the most expensive thing that most households will ever purchase, the purchase represents the largest single item of consumer wealth.
House price fluctuations can trigger significant knock-on effects on the whole economy.

Household wealth is intimately tied to the prices of houses, and so any changes, either positive or negative, will have consequences for household wealth. With house prices increasing in value, a positive wealth effect will follow due to the market value of the property being higher than what is owned by the mortgage. This equity increase can be accessed via remortgaging – a housing equity withdrawal – which in turn will result in consumer spending and further economic activity and consumer spending.

Because the UK has a large proportion of homeowners, interest rate fluctuations enacted by the Bank of England amount to a principal policy tool in regulating the UK economy. Interest rates have an impact on mortgage repayments (unless you have a fixed-term mortgage), which in turn has an impact on consumer spending.UK citizens are therefore especially sensitive to changing interest rates.