UK Housing Market Bounces Back to Pre-Pandemic Levels, with Notable Shifts

Pre pandemic

The UK housing market has returned to its pre-pandemic size, according to the latest analysis from Savills. This marks a significant milestone, considering the dramatic fluctuations the market has experienced over the past few years. While the market’s overall value now mirrors its pre-pandemic state, the composition of transactions and buyer behaviours have notably evolved.

The Numbers Behind the Recovery

In the year to March 2024, the total value of the UK housing market stood at £342 billion, matching its size just before the pandemic hit. At its peak during the housing boom, the market reached £521 billion, but a subsequent contraction of 21% brought it back to pre-pandemic levels. Despite this parity in overall value, the market’s dynamics have shifted considerably.

One of the most significant changes is the reduction in the number of completed transactions. There were 15% fewer transactions compared to the year leading up to March 2020. However, this decline has been counterbalanced by a 17% increase in average sale prices. The contraction is largely attributed to higher mortgage costs, which have tempered the enthusiasm of buyers reliant on loans.

Shifts in Buyer Behaviour

Lucian Cook, head of UK residential research at Savills, explains, “The contraction of the market primarily reflects the impact that the higher costs of mortgages have had on the appetite of buyers to take on more debt. Mortgaged home movers and buy-to-let investors were particularly affected.”

Interestingly, demand from equity-rich buyers has remained robust, and first-time buyers have shown surprising resilience, albeit heavily supported by family assistance. The study highlights a 13% reduction in mortgage debt used to purchase homes compared to four years ago, but this has been offset by an 11% rise in the use of equity.

The Rise of Cash Buyers

Cash buyers have played a pivotal role in sustaining the market. Their spending surged by 19% over the past four years, accounting for £144 billion in the year to March 2024, or 42% of the total housing market expenditure. This increase in cash transactions indicates a shift towards more financially secure buyers who are less affected by mortgage rate fluctuations.

Future Outlook

Looking ahead, there is cautious optimism about the market’s trajectory. “Interest rate cuts will mean that the range of buyers coming to the market will widen, and we can expect to see their spending power pick up over the next 12 months,” Cook predicts. This anticipated growth is expected to be driven by those who have delayed their plans to upgrade their homes during the period of market instability.

Savills’ mainstream forecast projects a 2.5% increase in house prices in 2024, driven primarily by the expected decrease in mortgage costs. By the end of 2028, house prices are forecasted to grow by 21.6%. Additionally, housing transactions are expected to reach 1.05 million in 2024, slightly up from last year’s forecast of 1.01 million.

What This Means for Buyers and Sellers

For prospective buyers, the market’s return to stability coupled with potential interest rate cuts could create a more favourable purchasing environment. Those looking to sell may find increased activity and potentially higher sale prices as demand from a broader range of buyers resumes.

While challenges remain, particularly for those still facing high mortgage costs, the overall outlook for the UK housing market appears positive. The recent stabilisation and the strategic behaviour of equity-rich and cash buyers highlight a market adapting to new economic realities while paving the way for future growth.

In summary, the UK housing market’s return to its pre-pandemic size signals resilience and adaptability, with evolving buyer behaviours shaping its future landscape. As the market continues to stabilise, both buyers and sellers can anticipate a more predictable and dynamic environment in the coming years.

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