UK property prices v inflation

UK property prices v inflation

UK property prices v inflation

Over the years there has been much mention of UK property prices and their phenomenal rise in the longer term which has in many parts of the country pushed house prices beyond the limits of first-time buyers. We therefore thought it would be interesting to take a look at UK property prices and compare them against inflation in the 1980s, 1990s, 2000s and the current decade. The findings are very interesting and you are likely be surprised by some of the figures mentioned.

On the whole the UK property market has been an excellent long-term investment for many people although as our report shows, if you timed your investment incorrectly then you could lose out when taking inflation into account.

The UK property market 1980 to 1989

According to the Nationwide Building Society, the average house in the UK was valued at £21,966 at the end of 1979. This had increased to £61,495 by the end of 1989 which was a phenomenal 179.95% increase over the ten-year period. The inflation-adjusted price was £42,980 which is in itself a significant increase of 95.66% but nowhere near the actual rise in house prices.

For many people the 1980s were the boom times for the UK economy and as such property ownership was promoted by successive governments. This is perhaps one of the best periods for UK house prices in living history.

The UK property market 1990 to 1999

The average UK house price ended 1989 at £61,495 and by December 1999 this value had increased to £74,638. The actual increase was 21.37% over the decade although interestingly the inflation-adjusted price should have been £86,660 which equates to a 40.92% increase over the period. The 1990s were a difficult time for the UK economy and as such demand for houses, and indeed affordability, was difficult to say the least.

Quote from : “One in four brokers in the UK claim that the Bank of England’s flagship Funding for Lending Scheme aimed at helping to boost the property market has failed expectations to date.”

As with the 1980s, the 1990s saw UK house prices end the decade at record levels even though the relative performance was less than the inflation-adjusted figure.

The UK property market 2000 to 2009

The average UK property price began the new century at £74,638 although by the end of 2009 this had increased to a phenomenal £162,116. The rise in actual house prices during the decade equates to 117.20% although the inflation-adjusted value was just £97,079 which in itself represented a significant increase of 30.07% of the decade – but nowhere near the actual rise in house prices over the period.

It is interesting to note that the peak in UK house prices during this decade occurred in 2007 hitting £183,959 although the U.S.-led mortgage crisis and ensuring economic difficulties saw a significant collapse from that year onwards.

The UK property market 2010 to 2012

It is no surprise to learn that UK property has struggled to maintain much forward momentum since the 2007 US mortgage crisis which resulted in a worldwide economic downturn. When you also take into account not only the European economic crisis but also issues with the UK debt and government budgets, this has been a difficult period for the UK property market. However, property prices began 2010 at £162,116 and by the end of December 2012 they had registered a small rise to £162,924 which equates to a rise of just 0.49%. The inflation-adjusted figure for this period is £183,572 which equates to an increase in property values of 13.24%.

As we write today, there are renewed signs that the UK property market is coming back into favour, investors are targeting London and perhaps the economy is starting to turn. Whether we will see actual property prices outperform inflation-adjusted prices during this current decade remains to be seen because there are still some very difficult times ahead for the UK economy.


If we look back to the 1980s, we see that property prices far outperformed inflation-adjusted prices although this situation was reversed in the 1990s. The 2000s saw property prices yet again significantly outperform inflation-adjusted prices although this may well be due to the fact that inflation remained relatively low due to the economic situation. It seems as though we have a decade of over indulgence in the property market, then a decade of economic rebalancing and then the property bandwagon begins to roll again during the next decade.

So far this decade, between 2010 in 2012, UK property prices have underperformed the inflation-adjusted figure by around 12.74% and it will be interesting to see how the decade ends.

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