The ramifications of the 2007-08 financial crisis were felt throughout housing markets worldwide, many of which have not fully recovered. Now 10 years later, a new report looks at exactly how the effects have lingered on the U.K. market.
About £312 billion (US $408 billion) was spent on homes in the U.K. in the year ending in March 2017, according to the report, released Thursday by the London-based real estate firm Savills. That’s £30 billion (US $39 billion) less than was spent through the same time period in 2007. And with lending constraints still high, both first-time buyers and those trading up are feeling the pinch. The report looked at the general U.K. housing market, and did not differentiate between luxury and other markets.
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"The global financial crisis has fundamentally changed the nature of the U.K. housing market," Lucian Cook, Savills head of residential research, said in the report. "It’s made getting on the housing ladder heavily dependent on the Bank of Mum and Dad or Help to Buy [a program for first-time buyers], has meant homeowners trade up the housing market less often and has placed much greater demands on the private rented sector."
The immediate effects of the crisis were obvious: Home prices in the U.K. went down 20% over a 16-month period starting in August 2007, with prices only bouncing back in May 2014, the report said. Transactions went from a yearly average of 1.65 million to 730,000 in the year ending in June 2009.
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Now, the average home price in the U.K. is £209,971 (US$274,850), compared to £181,180 (US$ 237,163) in 2007. London has seen more of a recovery, with price growth around 78%t, according to the report. Homes now average around £478,142 (US$626,885), as opposed to £382,761 (US$274,850) in 2007.
The difference in price between London and the rest of the country, make city living a particularly expensive endeavor for many British citizens.
"This has huge implications for mobility across the U.K., and also leaves affordability particularly stretched in London, with parallels in cities such as Oxford, Cambridge and Brighton," according to Mr. Cook. Commuter towns have also seen prices rise, "as investors and homeowners have looked to stretch their equity," he added.
And equity is what buyers need, as loans are harder to come by and have drastically different terms.
"Long gone are the days where an interest-only mortgage would facilitate a move to a bigger, better property," according to the report. "Interest-only mortgages—which accounted for one-third of all new loans in 2007—now represent just 1.2% of all lending to homeowners."
Plus loans for more than 90% of the loan-to-value ratio are down to 3.9% from 14.1%, the report said.
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In addition, the amount needed to put a deposit on a house in the U.K. has soared from £12,556 (US$16,457) in 2007 to £26,224 (US $34,370) in 2017, and younger buyers are often strapped for the cash needed to secure a new spot. The change is even greater in London, with an average deposit at about £97,513 (US$127,778), as opposed to £21,196 (US$27,780) a decade ago.
"Parental funding and government support are now heavily relied upon to help younger generations to get on the housing ladder," the report said. "It is unlikely to change."
Another consequence of tightened lending is that more people are choosing to rent for longer, pushing off home purchases. But even as the demand for rentals has increased, investment in such buildings is back to 2007 levels. Although rental demand had put brought landlords back to the market by March 2016, new tax laws have cooled interest from potential investors and borrowing has decreased by half in 2017.
"In buy to let, as with all other sectors of the market, cash will remain king," Mr. Cook said.
Data for the report was culled from the Savills' own research, as well as numbers from the Council of Mortgage Lenders, Financial Conduct Authority and Prudential Regulation Authority, Nationwide Building Society and Her Majesty's Revenue and Customs.