The State of the Housing Market

The State of the Housing Market Featured Image

8 min read



Mohsin Patel

Mohsin Patel


The housing market is the cornerstone of the British economy, for reasons both good and bad.

Millions of young people in this country aspire to stable jobs and house ownership. However, house prices seem to be an escalator that never ends.

We’re in a unique economic moment in the UK:

  • A slowdown in economic productivity over the past decade
  • A likely recession
  • Increasing interest rates after more than a decade of almost 0% rates
  • Rising economic inactivity but very low unemployment
  • Not enough houses being built in proportion to the rise in population

All these factors and more affect the ever-buoyant average house price. No one must invest in stocks or crypto, but everyone must live somewhere and therefore buy a house or pay for housing.

For this reason housing market prices and data generate the most interest and affect us all, whether you want to buy or have already bought or even rent.

Let’s first take a look at how to understand housing data, and then look at the current state of the housing market and where it’s headed.

Read on for a deep dive on the current state of the housing market.

How to read housing market data

Go to any newspaper site and you’ll see a few stories on the housing market every week.

One headline declares monthly prices have increased and another says year-on-year prices have increased. Another article pools opinion from industry pundits giving their latest predictions, while another piece talks about the dire plight of first-time buyers.

All these articles and pieces talk about prices in so many ways it can be dazzling.

The reason disparate figures circulate is because these stories are based on different indices that measure slightly different aspects of the housing market.

So, the key to understanding the housing market is being able to read the different datasets and indices.

House price data and indices: the basics

Most of the media focus their attention on specific indices:

IndexData sourceSample size (approximately)CoverageWhat the data is based on
UK House Price IndexRegistration data from HM Land Registry, Registers of Scotland and Land and Property Services Northern Ireland  100,000 a monthUKConfirmed house sales
NationwideNationwide mortgage lending12,000 a monthUKMortgage approvals (by Nationwide)
HalifaxHalifax mortgage lending15,000 a monthUKMortgage approvals (by Halifax)
LSL AcadataHM Land Registry price paid data80,000 a monthEngland & WalesRegistration of sale
RightmoveAdvertised properties on Rightmove100,000 a monthEngland & WalesProperty listing

How to use each index

An important factor to consider when trying to read housing market data is to see how often the data in each index is published:

TimelinessIndexWhen data is published after reference periodWhen the data is recorded
Most timelyRightmovePublished during reference periodWhen house is advertised
 Nationwide1 weekMortgage approval
 Halifax1 weekMortgage approval
 LSL Acadata2-3 weeksRegistration of sale
Least timelyUK House Price Index6 weeksRegistration of sale

We can then categorise the indices into three categories based on what the data is based on:

  • House sales: UK House Price Index and LSL Acadata
  • Mortgage approvals: Nationwide and Halifax
  • Property listing: Rightmove

Let’s explore the advantages and disadvantages of each.

House sale indices

These indices offer the most comprehensive data on house prices in the UK.

The UK House Price Index in particular counts the registration of all sales within the UK. The index even allows you to zoom in to local authorities and cities to see house prices at a more local level.

The UK House Price Index is the most authoritative index and is used by the Bank of England to measure house price inflation.

The drawback of these indices, though, is the time lag of as much as two months. So, while the index is good to get a deep look into the market, for people looking for the most up to date prices to buy or sell, it may not be as useful.

The LSL index uses Land Registry data and adds its own forecasting model to estimate prices for the current month. Hence, it is not necessarily a ‘record’ of actual prices for the latest month.

Mortgage approval indices

Nationwide and Halifax use their own mortgage approval data, so they are not as comprehensive as the house sale based indices.

They also don’t include pure cash sales because of that, which make up around 30% of sales.

They use different methodologies and data, so their findings are different.

Of course, the biggest advantage of these indices is that they have hardly any lag and are very timely. This can be useful for people that need an up-to-date picture of the housing market.

Property listing indices

Rightmove acquires its data from the properties listed on its site.

Whatever price the estate agent lists a property at, that price forms part of the data of the index.

Of course, the disadvantage of this is that the sample size only covers Rightmove’s listings, and a seller won’t necessarily receive the asking price listed so the figures aren’t exact.

The biggest benefit of the Rightmove index is that it gives the timeliest data which can be important for people that need to keep their finger on the pulse of the market.

The state of the housing market

The UK housing market has been through a rollercoaster ride in the past two decades, with periods of rapid growth followed by sharp downturns.

Historic house price movements

According to Halifax, the average new home in the UK cost £294,845 in August 2022, which was an all-time record. This represented a 9.4% increase from a year earlier and a staggering 230% increase from January 2000, when the average price was £89,292.

However, this impressive growth was not smooth or uniform across regions or time periods. The UK housing market experienced two major booms and busts since 2000: one between 2000 and 2008, and another between 2013 and 2021.

The first boom was driven by strong economic growth, low interest rates, easy credit availability and rising demand from first-time buyers and buy-to-let investors. House prices more than tripled between January 2000 and August 2007, reaching a peak of £199,612. 

However, this boom came to an abrupt end with the onset of the global financial crisis in late 2007. The crisis triggered a credit crunch that made mortgages harder to obtain and more expensive to service. It also caused a recession that reduced incomes and consumer confidence. As a result, house prices fell by nearly 20% between August 2007 and April 2009, reaching a low of £154,663.

The second boom started after a period of stagnation between 2010 and 2012. It was fuelled by several factors: 

  1. Low interest rates that kept borrowing costs low.
  2. Government schemes such as Help to Buy that supported first-time buyers.
  3. Limited supply of new homes that failed to keep up with demand.
  4. Increased foreign investment in prime London properties.
  5. Pent-up demand from buyers who had postponed their purchases during the crisis.
  6. Rising rental costs that made buying more attractive than renting for some households. 

House prices rose by nearly 70% between April 2012 and March 2021, reaching a peak of £256,000.

The impact of the Covid pandemic

The covid pandemic had a massive impact on the UK housing market in both positive and negative ways. 

On the one hand, it disrupted normal activity for several months in early 2020 during the lockdown. Transactions of residential properties fell by nearly half between March and April 2020, while mortgage approvals dropped by more than two-thirds over the same period. House price growth also slowed down significantly, from an annual rate of over 8% in February 2020 to just over 1% in June 2020.

On the other hand, the pandemic also stimulated some unexpected sources of demand for housing. One was the need for more space due to greater home working, which prompted many people to look for larger or better-equipped properties, especially outside urban areas. 

Another was the stamp duty holiday introduced by the government in July 2020, which offered buyers a tax break on properties worth up to £500, 000 until March 2021 (later extended until June). 

This incentive encouraged many people to bring forward their purchases or enter the market for the first time. These factors, combined with the easing of lockdown restrictions, a strong economic recovery, and continued low interest rates, created a surge in activity and prices in the second half of 2020 and the first half of 2021. 

House prices increased by nearly 20% between June 2020 and June 2021, while transactions reached record levels.

The UK housing market experienced a remarkable boom in 2022, driven by a combination of factors such as pent-up demand, low interest rates, government support schemes and changing preferences due to the pandemic.

According to the Office for National Statistics, average UK house prices increased by 9.8% in the 12 months to December 2022, reaching a record high of £294,000. The highest growth was recorded in the East Midlands and northwest England, while London saw a modest increase of 2%.

The current state of UK housing market

However, this boom came to an abrupt end in early 2023, as the UK faced a severe economic downturn triggered by rising inflation, higher interest rates and supply chain disruptions. 

The cost of living crisis has eroded household incomes and consumer confidence, making it harder for buyers to afford mortgages and other housing-related expenses. 

The Bank of England has raised its base rate from 0.1% at the start of 2022 to 4% by February 2023, and is expected to hike it further to around 4.75% by the end of the year. This has increased borrowing costs for homeowners and dampened demand for new loans.

As a result, house prices have started falling month-on-month since January 2023, with Scotland reporting a hefty 2.9% decrease in December 2022. The number of mortgage approvals has also plummeted to 43% below the average for December, indicating a slowdown in market activity. 

The current state of the housing market in the UK is very uncertain, especially for those who bought properties at peak prices or with high loan-to-value ratios. 

Many homeowners may find themselves in negative equity or struggling to meet their mortgage repayments if interest rates rise further or their incomes fall due to unemployment or wage cuts. Some may be forced to sell their homes at a loss or face repossession if they default on their loans.

Future outlook

Inflation is at the front of every market watcher’s mind.

The Bank of England responded by increasing interest rates (read more on why interest rates went up).

This is bad news for those with mortgages on variable rates, as monthly payments can easily skyrocket.

Interest rates signal to people to save money, which could eventually cause a slowdown in the housing market. In the short-term, it could cause prices to soar even further as buyers try to race against the rate hikes and buy before any further increases in the interest rate.

However, higher rates make buying and moving houses more expensive for mortgage and remortgage applications.

Given a medium to long-term predicted increase in interest rates, it is reasonable to assume that the euphoric increase in house prices won’t continue, at least not at the same rate.

No one can predict the movements of the market, and given the perpetual lack of supply in housing, you can’t assume prices will necessarily plateau any time soon.

Given interest rate increases, increasing costs of living, the end of covid-era protections, and economic uncertainty, it is not farfetched to predict a less euphoric market going forward.

As with any personal financial decision, a lot of the decision rests on your goals and your own financial plan.

If you’re looking to buy a house, be sure to check out our definitive guide to Islamic mortgages.

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Mohsin is the co-founder of IslamicFinanceGuru, an Oxford graduate and a Forbes 30 under 30 alumnus. He's a former corporate lawyer at one of the world's largest US firms. Whilst running IFG, Mohsin is also actively interested and invested in the web3/crypto space. Publication: Halal Investing for Beginners: How to Start, Grow and Scale Your Halal Investment Portfolio (Wiley) Mohsin is the co-founder of IslamicFinanceGuru, an Oxford graduate and a Forbes 30 under 30 alumnus. He's a former corporate lawyer at one of the world's largest US firms. Whilst running IFG, Mohsin is also actively interested and invested in…