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UK housing market returns to pre-pandemic size at £342bn

UK housing market returns to pre-pandemic size at £342bn
Shekina Tuahene
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Shekina Tuahene

The value of the UK housing market reached £342bn in Q1, marking a return to its pre-pandemic size, data from a property firm showed.

While this was flat on the value of the UK housing market in Q1 2020, in the year to March 2024, the sector had contracted by 21% due to lower levels of activity, according to analysis from Savills. 

The firm said during the mini boom of the housing market, its value temporarily peaked at £521bn. This is based on information from HMRC, the Office for National Statistics (ONS), the Bank of England and HM Land Registry. 

A different housing market 

Although the value of the UK housing market was the same as it was four years ago, Savills said its make-up was different. 

There was a 15% decline in completed transactions compared to 2020, but this was offset by a 17% uptick in average sale prices. 

Lucian Cook, head of UK residential research at Savills, said: “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, with mortgaged homemovers and buy-to-let [BTL] investors particularly affected. 

“Demand from equity-rich buyers has been more robust. And that from first-time buyers has stood up surprisingly well, albeit heavily supported by the Bank of Mum and Dad.” 

Use of debt vs equity 

Some 13% – or £20.7bn – less mortgage debt was used to buy homes in the year to March 2024 compared to four years earlier. However, this was offset by an 11% rise in the use of equity for house purchases. 

Savills said the rise in the use of equity was fuelled by a 19% surge in spending by cash buyers over the last four years, which totalled £144bn in the year to March. 

This was equivalent to 42% of the total spend on house purchases in the UK. 

Interest rate cuts to entice more buyers 

Savills predicted that lower interest rates would encourage a wider range of buyers into the market with improved spending power over the next 12 months. 

Cook said: “Those who have put off plans to trade up the housing ladder over the past two years are likely to underpin growth in the housing market going forward.” 

“Though the headwinds haven’t completely died down, we have already seen a pick-up in agreed sales on the back of more stability in the mortgage markets. That suggests that as rates fall, the market will return to growth, despite owners who are yet to come to the end of their fixed rate experiencing an uplift in underlying their housing costs.” 

Savills predicted that house prices would rise by 2.5% this year, mostly due to falls in the cost of mortgage debt. By the end of 2028, house prices will increase by 21.6%. 

It forecast there would be 1.05 million housing transactions this year, slightly higher than the 1.01 million forecast at the end of last year.