Capital appreciation for rental sector lags behind owner occupation

Figures out this morning from high end agency Savills shows a 5.1 per cent increase in capital appreciation on average across the UK housing market last year.

The total value of all homes across the UK reached a new £8.68 trillion (or £8,679 billion or £8,679,000,000,000) high at the end of 2022.

With outstanding mortgage debt standing at £1.66 trillion, according to the latest Bank of England records, that meant net housing wealth exceeded £7.0 trillion for the first time last year, equivalent to almost 81 per cent of the total value of UK housing. Of this, almost half – a record £3.34 trillion – was held by mortgage-free homeowners.

“The growth in house prices over the past three years has added considerably to the paper wealth of homeowners, driven in no small part by the well-documented ‘race for space’ over the period” says Lucian Cook, Savills head of residential research. 

Though annual growth was lower than in the two preceding years, at £425 billion, it means a total of £1.625 trillion has been added to UK housing value over the past three years. 

“The total value of all housing has risen by almost a quarter since 2019, while outstanding mortgage debt went up by a lower 11 per cent. So, while outstanding borrowing increased by £168 billion, the growth in the total equity pot was well over nine times that figure at £1.46 trillion.”

But whereas in the period from 2012 to 2017 the value of private rented stock grew by £495 billion - somewhat more than the £443 billion growth in the value of homes owned by mortgaged homeowners - over the five years to the end of 2022, that trend reversed.

Instead the value of private rented stock rose by a much lower £222 billion, while mortgaged owner-occupier homes added a total £669 billion to their value.

“Though mortgage borrowing equates to less than a fifth of the nation’s housing stock value, the cost and availability of that debt will be crucial to the shape of the housing market over the next four or five years” Cook says.  

“Recent figures from HMRC indicate that buying activity peaks among those in their 30s, with the under 45s accounting for 59 per cent of all purchases. While the purchasing power of older buyers is more determined by the housing equity they have accumulated, younger buyers require finance which means the mortgage markets are the engine room of the housing market” notes Cook. 

“Recent interest rate rises are going to continue put first time buyer and second stepper budgets under pressure in 2023 and 2024. Combined with the prospect of lower levels of house building, we expect that 2022 will represent a high watermark for the value of the nation’s housing stock for a few years.

“At the same time, activity among younger buyers that has improved in recent years is likely to come under more pressure, which will present a particular challenge for policymakers.”