Everyone, but everyone, has an opinion on the UK housing market, ranging from the esteemed economists who obsess about house price-to-income ratios to the conspiracy theorists who rank the level of house prices alongside the moon landings, area 51 and the assassination of JFK.
There is a temptation for all groups to treat the housing market as a single entity, and judge the UK by reference to what is happening in that part of the market where the problems are most acute. In reality, what we have is a multidimensional market.
Our annual valuation of the UK’s housing stock bears witness to this. Over the past 10 years the value of London’s housing stock has risen by £854bn to more than £1.6trn. By contrast, the value of housing across the three regions of the north of England has fallen by £5bn to just under £900bn.
To suggest there is a housing bubble in Burnley, where the average house price is less than £100,000, just because there are 53 electoral wards across London where the average house price is more than £1m is, frankly, a bit bonkers.
That said, there is little doubt that across significant parts of the UK, house prices are expensive. The implications of this – most notably the difficulty faced by younger generations to get on the housing ladder – are often cited by those who subscribe to the housing bubble theory as a reason why house prices must fall.
The difficulty with this argument is that a lack of access to home ownership is not a catalyst for a price correction but instead a result of a myriad of other factors which keep house prices high. As we regularly hear, these factors include an inherent undersupply of new housing, although in truth this is only one part of a much bigger jigsaw.
The extent to which the value of UK housing is dominated by housing equity and the low cost of servicing the remaining debt is just as important, if not more.
While the value of the UK’s housing stock approached £6.2trn at the end of 2015, the amount of outstanding mortgage debt was a fraction of this figure, standing at around £1.3trn. The value of stock among owner occupiers with no mortgage debt at all stood at more than £2bn. For the remaining 49 per cent of owner occupiers with a mortgage, the average mortgage stood at just over £120,500.
That means the average mortgage interest for someone already on the housing ladder but still with outstanding mortgage debt is £3,652 a year – 20 per cent less than where it was 10 years ago. For most people already on the property ladder, affordability is not a major concern, and as a consequence there are very few forced sellers.
That means we are in a very, very different place to the late 1980s and early 1990s.
There are, of course, questions as to what happens when interest rates rise. All of the signs are that these rate rises are still a little way off and are likely only to be gradual when they do occur, limiting the risk that they will trigger a correction in the market.