The great house price crash – is it really all over?

For much of the UK, house prices have yet to get back to their peak levels, says John Stepek. And for buy-to-let landlords, there may be worse to come.


The UK housing market has been something of an obsession for MoneyWeek, which is no surprise, given that the entire British population appears obsessed with bricks and mortar. We predicted that the overvalued UK market would crash as far back as 2004, but it wasn't until 2007 and the credit crunch which briefly put a stop to the free flow of cheap money that was fuelling the bubble that we finally saw the denouement.

Since then, given the media-at-large's tendency to focus within the M25 and not that much far beyond it, you may have had the impression that all is well with the property market and that it's largely roaring ahead, reinflated by central bank money-printing and the usual arguments about short supply that everyone trots out when prices are rising.

But in fact, if you look at figures from Nationwide (the table below), most ofthe UK beyond the southeast of England is still struggling to recover from the crash. As the figures show, prices in North-East England, Scotland, Wales and Northern Ireland (a bit of a special circumstance, given its exposure to Ireland's bubble market too) have yet to regain their 2007 peak levels. And in real terms (adjusting for inflation), UK prices as a whole have still to recover to peak levels, as the chart demonstrates.

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The reality is that it's only really in London that we've seen the sort of rampant comeback that it's assumed has happened everywhere else in Britain. However, that said, given the lack of wage growth for much of the post-2008 period (which is only starting to improve just now), prices remain out of reach for many people, even in the most depressed areas. On top of that, the Bank of England's mortgage market review has made it a lot harder for many potential buyers to get hold of a mortgage the hurdles that have to be jumped through are far greater than they once were. So what's been going on?

The rise and pending fall of buy-to-let

As James Ferguson pointed out in our cover story a month or so ago, first-time buyers struggling to raise deposits to buy houses at today's central-bank inflated prices have been competing with buy-to-let investors for starter properties and for the most part they've been losing out. As a result, roughly 4.4 million people (18% of households) now rent the houses they would otherwise have bought from private landlords up from 2.2 million in 2002/2003. Indeed, for the first time ever, the number of people renting from private landlords exceeds those in council and housing association houses.

However, the good times may be nearing an end for buy-to-let. Obviously, there's the threat of interest rates potentially rising, but that could still be some way off. Far more pertinent is Chancellor George Osborne's decision this year to start reducing the tax benefits associated with investing in rental properties.

The maths of buy-to-let very quickly becomes far less attractive as tax relief on mortgage interest is phased out, a fact that many amateur landlords are only just waking up to, judging by the cries of outrage in the financial supplements of the Sunday papers. Have we reached peak buy-to-let? Put it this way in a country full of cash-strapped politicians looking for easy political targets with wealth to tax, we wouldn't bet against it.

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Q3 2000 average price£65k£69k£76k£82k£102k£135k
Q3 2007£159k£157k£165k£184k£215k£259k
Q3 2015£146k£161k£167k£199k£247k£327k
% change since 2000124%133%119%142%144%142%
% change since 2007 peak-8.30%2.20%1.20%8.80%12.10%20.90%
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Q3 2000 average price£148k£89k£61k£65k£71k£81k
Q3 2007£302k£204k£154k£152k£228k£184k
Q3 2015£443k£220k£147k£140k£128k£196k
% change since 2000200%147%141%117%79%142%
% change since 2007 peak31.80%7%-4.40%-7.90%-44.10%5.60%
John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.