A report by the Council of Mortgage Lenders (CML) has opened of a very interesting debate about the UK housing market and the fall in the number of people moving homes. Historically those either upgrading or downgrading their property offered much needed liquidity to the UK property market and a greater choice for those looking to buy. This report by the CML suggests that there are 320,000 “missing movers” each year which are impacting the UK property market. So, why are fewer people moving homes and what does the future hold?
No mortgage homeowners
As the UK population continues to grow older, the percentage of older people with homes on which their mortgages have been paid off continues to rise. The report by the CML indicates this group of the population is less likely to move home in their later years and account for around 200,000 of the “missing movers”. The trend towards a growing number of older people as a percentage of the UK population is something that is not only impacting the housing market but also public services and many other areas of everyday life. So, this trend is unlikely to change so as ever the markets will need to adapt.
By definition mortgaged homeowners who are not moving property account for around 120,000 of the “missing movers” figure. In years gone by it was traditional for new buyers to start small and then begin to move up the property ladder as their wages increased and their financial reach extended. Since the 2007/8 economic downturn, which hit the worldwide economy and the property market, the cost of living and the cost of property in the UK has grown at a greater rate than wage inflation.
As a consequence, many people who climbed aboard the property ladder with the intention of moving to more expensive properties in due course have been forced to change their plans. In many ways the low inflation/low interest rate environment in which we live today has provided nothing but a sticking plaster for a problem which will become greater when interest rates begin to move back towards “traditional levels”. At this point those who overstretched themselves to acquire their first property will potentially struggle to cover mortgage payments causing a knock-on effect within the UK property sector.
It’s all down to the economy
There is no doubt that economic growth encourages a feelgood factor and also puts more money in the pockets of consumers. When an economy is growing it is easier to push through wage inflation which will at least allow UK households to stand a chance of competing with property price inflation. The UK economy has performed far better than many of its competitors overseas of late but the issue of Brexit continues to hang like a dark cloud over the UK economy. It is therefore unlikely that UK businesses will invest heavily until they know the result of Brexit talks and many overseas companies may hold off investment in the UK.
On the flipside of the coin, the devaluation of sterling over the last 12 months has made UK property even more attractive to overseas investors. Over the last 12 months there has been a circa 20% reduction in the value of sterling effectively giving overseas property investors a 20% reduction on UK prices. Many have taken advantage of this unique situation which has pushed property prices higher, further and further out of the reach of first-time buyers. As we know, first-time buyers are also the lifeblood of the UK property market but they are struggling to climb aboard the property ladder with large deposit requirements.
The trend of fewer older people moving home, less mortgaged homeowners been able to afford to step up and first-time buyers struggling to put together a deposit and fund mortgage payments is certainly holding back the UK property market. Is economic growth the key to everything going forward?