The UK Housing Bubble Is Decreasing

published Nov 12, 2014
1 min read

There is one hot topic in the UK right now: insane property prices, both in terms of buying and renting. Housing prices have been on the rise for many years.


People with average incomes, who purchased houses for a few hundred thousand pounds in marginal areas, such as London’s East End during the mid 2000s have suddenly found themselves now living with assets worth more than £1 million. This is a likely result of the fact that there have been more and more people moving to the UK throughout the last decade.

Earlier this year, the “Housing Bubble” phenomenon appeared, as housing prices were increasing and property prices did not correspond with wages.

Overestimated fear of the housing bubble

The Bank of England released new figures which clearly stated that the fear of a bubble in housing prices had been overestimated. Property prices in the UK have risen sharply since hitting post- crisis lows in 2011. During the last year prices have risen by 7.2% in the country, with prices in London even reaching 18.4%.

However, in September the situation was the opposite and there was a modest fall in property prices. The number of loans granted against dwellings in September fell to 101,008, down from 105,816 in August. The value of mortgage loans during the period fell to £10 billion from £10.3 billion, with remortgages falling by a similar amount.

The number of home loans granted in the UK have been in decline since the start of 2014. This was initially attributed to the market’s response to tighter lending standards imposed under the Financial Conduct Authority’s Mortgage Market Review.

Under these regulations, lenders are responsible for assessing if a customer can afford a loan at average interest rates, and banks are required to verify the customer’s income before any loan can be granted. Previously, buyers could simply state their income with little verification. The regulator has subsequently been backed up by the Bank of England’s own Financial Policy Committee. This committee has been given the power by the chancellor to place limits on loan- to- value and debt- to income levels in residential mortgage lending as it sees fit.

This gradual cooling is precisely the kind of impact that the new regulations are supposed to lead to, as tighter lending standards prevent market over- enthusiasm from becoming self- fulfilling. But they can not address underlying mismatches between supply and demand in highly desirable areas of the country, like London. Also, regulations do not help buyers to overcome the rising affordability problem, as house price growth does not correspond with wages.

Marketers predict that housing bubble is not going to burst. It seems like it is going to stabilize, particularly in regards with the modest fall in August. However much of this also depends on whether the UK is going to manage immigration levels, as this is a key factor in the increase in housing demand.