Is the UK Property Market reaching Breaking point?

While we are used to property market growth in the modern age, the extent at which this has unfolded continues to be both surprising and worrying in equal measure. Given that this exponential rate of growth continues to outstrip national earnings, it is little wonder why there are fears that the market may be reaching breaking point in terms of sustainable pricing.

To put this into context, let’s take a look at the incremental monthly percentage increase that was reported last month. The Land Registry recently reported that property prices rose by a staggering 2.5% between December and January, which amounts to a cash sum of £4,732. This is the largest monthly increases recorded since June 2002, while it has pushed the average house price in England and Wales to £191,812.

This does not even take into account the city of London, where prices continue to spiral out of control and grew at an annual rate that is double the national average at the beginning of the year. This amounted to an annual increase of 13.9%, with the average home in the capital now costing £530,409.

In terms of regional monthly increases, houses in Wales saw the biggest hike as prices rose by 3.7% to an average of £125,665. Conversely, England saw more marginal monthly growth of around 2%, but this still represents an impressive increase over a period of just four weeks. Overall and throughout the course of the year, property values increased by 7.1% in England and Wales during 2015.

These statistics underline just why there is such a housing shortage in the current market, as constantly spiralling price points are encouraging home-owners to hang on to their real estate assets in the near-term. This incredible and sustained growth has therefore eradicated the sell house fast phenomenon in the UK, while enabling the small percentage of home-owners who do sell to access huge demand and a captive audience that has little choice to pay over the odds.

While this has underpinned excessive (and disproportionate) price growth and driven the market forward, however, it appears as though we may be approaching a breaking point in terms of future activity. After all, prices are not growing in accordance with earnings, meaning that sustained monthly increases such as the recent example continue to push real estate beyond the means of typical buyers. We may now be at a point where the market begins to stagnate and grind to a halt, and artificially increased prices force a larger demographic out of contention.

This is a huge concern, while it underlines how growth can be so misleading in a complex market such as real estate.

The question that remains is whether the government’s buy-to-let and affordable housing initiatives can make an impact before the market reaches its saturation point, as otherwise we could be set for a significant collapse. The onset of a global recession could exacerbate this, so there are plenty of reasons for home-owners to remain cautious in the current climate.

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