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Credit crunch still casts shadow on UK housing market

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The credit crunch is still shaping the housing market, finds a report by property adviser Savills.

The report cited a number of key legacies from the Global Financial Crisis: a dependency on the Bank of Mum and Dad to access home ownership; existing owners struggle to trade up the market; and a focus on the private rented sector, which has become a much longer term housing solution.

Savills also found that the market is more divided at a regional level than ever before. A huge gap has opened between London and the rest of the UK. Since 2007, price growth in London is 78%, double that seen in the South East and East, and at least four times that seen in all other regions.

The average house price now stands at £478,142 in London, more than double the £209,971 UK average. Wales, Yorkshire & Humberside and the North West are just into positive price growth ten years post credit crunch, while values in the North East remain on average 9% down.

Lucian Cook, Savills head of residential research, said: “This has huge implications for mobility across the UK and also leaves affordability particularly stretched in London, with parallels in cities such as Oxford, Cambridge and Brighton. Lower value commuter towns such as Slough, Stevenage and Harrow have also seen high price growth, as investors and homeowners have looked to stretch their equity.”

During the financial crisis, the average UK house price dropped 20% in the space of 16 months and transactions, which had averaged 1.65 million over the previous 10 years, crashed to 730,000 in the 12 months to the end of June 2009.

Savills has identified four key ways the GFC continues to shape the housing market:

1. Equity trumps debt: cash now plays a much larger role in a lower transaction market. A total of £312bn was spent on house purchases in the year to the end of March 2017, £30bn less than in 2007, but 57% of this total was cash.

Lending at 90 per cent loan-to-value (LTV) now accounts for just 3.9% of all new mortgages, down from 14.1% in 2007. Only 1.2% of all lending is interest-only, down from 32.5% just ten years ago.

2. Bank of Mum & Dad – a major lender: constraints on mortgage lending means the deposit hurdle is very much higher now than it was in 2007. The average deposit raised by a first-time buyer has more than doubled (+109%) to £26,224 across the UK as a whole. In London, it has more than quadrupled (+360%), to £97,513.

First-time buyer deposits totalled £10.2bn in the year to the end of March 2017, an increase of 85% over 10 years. Savills estimates that £4.2bn (41%) comes from parental or government-backed funding. “Without the help of the Bank of Mum & Dad and Help to Buy, home ownership would be beyond the reach of a great many more aspiring home owners,” said Cook. “We do not envisage this changing.”

3. Fewer rungs on the ladder: A more constrained mortgage lending environment means that fewer home owners are able to trade up the ladder. In 2007, 1 in 15 existing home owners moved home, a figure that has fallen to 1 in 27.

4. Squeeze on buy to let: In the year to March 2016, buy to let lending was effectively back to where it was pre credit crunch, as landlords saw an opportunity in rising house prices and growing demand from those excluded from home ownership. Increases in stamp duty and restriction on tax relief on interest payments have curtailed investor appetite and borrowing has halved.

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