The UK housing market is in a period of transition. The decline and stagnation of the last five years is in reverse and we are seeing the definite signs of a recovery. This housing market update deals with the key indicators of UK housing including the most recent data from Q2 2013.

1. August 2013
Housing Market Update
Review of the current state of the UK Housing Market by Katy Young

2. Housing Market Update by Katy Young
Key Findings
✤ Prices: House prices are rising back to levels similar to those seen in
2008. They are driven primarily by the London property market.
✤ Transactions: Property transactions are still muted at around half
the level of the previous pre-2008 peak.
✤ Affordability: Even though house prices are rising faster than
earnings, low interest rates have kept mortgage rates down and so
in that sense housing is affordable.
✤ Mortgages: First-time buyer and buy-to-let mortgages are at their
highest levels since 2007/8. Both represent a growing proportion of
overall lending.
✤ Building Starts: The positive momentum in the housing market has
begun to feed through in to construction. House building has
picked up during 2013.
Keywords: Housing Market| First-time buyers | Buy-to-let | Real cost of Borrowing | Help-to-Buy

3. Housing Market Update by Katy YoungNationwide & Halifax
House Prices
Both the Nationwide and
Halifax data show that house
prices are rising.
They each show annual
percentage change rates of
around 4%.
40,000
82,500
125,000
167,500
210,000
2003 2005 2007 2009 2011 2013
UK House Prices since 2003
Q3 2007
£199, 766
Q2 2013,
£167,069
Nationwide Halifax

4. Housing Market Update by Katy YoungONS
LongTermTrends
House price index is high but not
yet at the 2008 housing price peak.
130
145
160
175
190
2004 2006 2008 2010 2012
House Price Index
UK all dwellings, index 100 = 2002 -15.00
-11.25
-7.50
-3.75
0
3.75
7.50
11.25
15.00
2004 2006 2008 2010 2012
House Price Index Year % Change
Yearly change in June 2013 was
3.1%, showing stable increase.
June 2013
182.5
January 2008
185.5
LSL Acadametrics puts the average house price at £1,140 above the 2008
peak. This figure is higher than the ONS data because it includes cash
transactions which have spiked in Central London as prices rise.

5. Housing Market Update by Katy YoungONS House Price Index by Region
Regional Data
The increase in the House Price
Index is driven by strong growth
in the London market.
London prices increased by 8.1%
in the year to June 2013.
There are modest house price
increases in other parts of the
country. The average for the UK
excluding London is 1.5%.
Excluding London and the South
East the increase is only 1%.
This gives a 3.3% rise for England
and 3.1% for the UK.

6. Housing Market Update by Katy YoungHMRC
PropertyTransactions
Seasonally adjusted figures
show a slow but steady
upward trend since 2008.
The data for June 2013
shows a 12% yearly increase.
However transactions are
still around half the
pre-2008 levels.
June 2006
162,970
June 2013
86,400

7. Housing Market Update by Katy YoungHalifax
Affordability
Quarterly change: +1.5%. (Q2)
Yearly change: +2.9%.
House prices are rising faster than
average earnings.
Quarterly change: -0.07%. (Q2)
Yearly change: -1.7%.
Mortgages are affordable compared to
earnings because of low interest rates.
Halifax standardised average house price divided by average
earnings (Seasonally adjusted).
Mortgage repayments as a percentage of income.
3.0
3.8
4.5
5.3
6.0
2000 2002 2004 2006 2008 2010 2012
House Price - Earnings Ratio
20.0
27.5
35.0
42.5
50.0
2000 2002 2004 2006 2008 2010 2012
Mortgage - Earnings Ratio

8. Housing Market Update by Katy YoungBank of England
Real Cost of Borrowing
According to the Bank of England
figures the standard variable mortgage
rate has been stable around 4% since
2009.
Given this rate, the real cost of
borrowing will be negative if the change
in house prices is above 4%.
During 2013 as house prices have risen,
the real cost of borrowing has fallen.
0
2
4
6
8
2000 2002 2004 2006 2008 2010 2012 June 2013
10 year fixed rate mortgage Standard variable rate mortgage
Real cost of borrowing
Bank of England Loan Rates

9. Housing Market Update by Katy YoungFSA & CML
Mortgage Activity
The proportion of residential
lending attributed to house
purchases remained high in Q4
2012.
Mortgages accounted for 66%
of residential lending
compared with 61% in 2011.
Over 2012 as a whole £96.9bn
was advanced, 7% higher than
in 2011.
0%
25%
50%
75%
100%
Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Q4-2012
Residential loans to individuals: Purpose of loan
House purchase Further advance Remortgage Other
CML data for 2013 recorded a 26% yearly increase in total gross
mortgage lending, taking it up to £15bn in June 2013.

10. Housing Market Update by Katy YoungFSA & CML
First-time Buyers (FTBs)
CML data for June 2013 put the number of loans to FTBs up 30%
from last year, reaching 68,200 - the highest quarterly total since 2007.
Additionally, the value of loans (£m) in June 2013 was up 40% from
last year. This increase in the gross value is because first-time buyers
are increasing the amount they borrow.
0%
15%
30%
45%
60%
Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Q4-2012
House purchases: Owner occupation
First-time Buyers Other
The FSA data shows that
the percentage of house
purchase loans going to
FTBs continued its
quarterly increases from
18% to 19% in Q4 2012.

11. Housing Market Update by Katy YoungFSA & CML
Buy-to-let
FSA data has the proportion of
house purchases for buy-to-let
lending up to 11% - the highest
percentage since 2008.
CML’s Q2 2013 data showed
40,000 buy-to-let mortgages
worth £5.1bn. Both figures were
the highest they had been since
2008.
0%
3.5%
7.0%
10.5%
14.0%
Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Q4-2012
House Purchases: Buy-to-let

12. Housing Market Update by Katy YoungONS
Rental Market
The rental market did not
see a significant decline
during the recession.
May 2013 data shows a
1.3% yearly increase in
rental prices.
94.0
96.5
99.0
101.5
104.0
2005 2006 2007 2008 2009 2010 2011 2012 2013
Index of Private Housing Rental Prices
Not seasonally adjusted.
Index level: January 2011 = 100
✤ The strong rental
market helps to explain
the growth in the buy-
to-let mortgage market.
✤ High rents make new
mortgages for FTBs
relatively attractive
compared to renting.

13. Housing Market Update by Katy YoungGfK
Consumer Confidence
The UK Consumer Confidence
index averaged -9.71 since 1981.
With a recorded low of -39 in
July 2008.
According to the latest GfK
figures the index increased to
-16 in July 2013, its highest
level since April 2010.
Q2 2013 has seen one of the best
single quarter improvements
since the July 2008 low.
-40
-30
-20
-10
0
Aug 11 Dec 11 Apr 12 Aug 12 Dec 12 Apr 13 Jul 13
GfK UK Consumer Confidence

14. Housing Market Update by Katy YoungHM Government
Government Housing Schemes
The Help-to-Buy scheme was launched in April 2013.
In the first two months 4000 people reserved new
homes under the equity loan scheme.
The scheme has helped to overcome the barrier of
large mortgage deposits, especially for first-time
buyers.
There are concerns that the scheme is creating a
housing bubble, which has led to calls for the
coalition to call off the planned introduction of a
government guarantee in January 2014.

15. Housing Market Update by Katy YoungBank of England
Government Loan Schemes
The Funding for Lending scheme involves the Bank of England
providing cheap loans to banks and building societies in order to boost
their lending to businesses and individuals.
Since its introduction in August 2012, the impact has been a reduction in
bank funding costs which have then been directed towards lower
mortgage rates.

16. Housing Market Update by Katy YoungRICs
Buyers andVendors
RICs new buyer enquiries
and new vendor
instructions are both
increasing. However buyers
exceed vendors.
The lack of housing for sale
is driving prices higher.
This is in part caused by the
increase in first-time buyers,
who contribute to demand
but have no property to sell.

17. Housing Market Update by Katy YoungHometrack
Housing Supply
Last year 160,000 new homes
were built in England. However,
this is still short of the CLG
projected household growth of
223,000 per year.
Hometrack supply/demand
balance is positive for 2013
indicating house price rises.
The lack of housing supply is
partly due to planning
restrictions. The Home Builders
Federation reported on average
it takes home builders 15
months to receive full planning
permission.

18. Housing Market Update by Katy Young
Starts & Registrations
10000
25000
40000
55000
70000
2005 2007 2009 2011 2013
Housing Starts (including ONS predictions)
ONS NHBC
House building fell during the
recession but is growing again.
NHBC Q2 2013 figures show
yearly growth of 38% in
registrations.
Using the high correlation
between NHBC and ONS
figures we can forecast the
ONS 2013 figures.
This gives predicted ONS
starts of 43,000 in Q2 2013 and
yearly growth of 45%.
ONS & NHBC

19. Data Sources
With thanks to John Ashcroft
Nationwide http://www.nationwide.co.uk/hpi/default.htm
Halifax http://www.lloydsbankinggroup.com/media1/economic_insight/halifax_house_price_index_page.asp
ONS http://www.ons.gov.uk/ons/taxonomy/index.html?nscl=Housing+Market
HMRC http://www.hmrc.gov.uk/statistics/transactions.htm
Bank of England http://www.bankofengland.co.uk/statistics/Pages/default.aspx
FSA http://www.fsa.gov.uk/library/other_publications/statistics
CML http://www.cml.org.uk/cml/statistics
GfK http://www.gfk.com/news-and-events/Pages/default.aspx
HM Government Help-to-Buy http://www.helptobuy.org.uk/
RICs http://www.rics.org/uk/knowledge/more-services/guides-advice/uk-house-prices/
Hometrack http://www.hometrack.co.uk/our-insight
Home Builders Federation http://www.hbf.co.uk/media-centre/facts-statistics/
NHBC http://www.nhbc.co.uk/Builders/ProductsandServices/InformationProducts/HousingMarketReport/
CLG https://www.gov.uk/government/organisations/department-for-communities-and-local-government/
about/statistics