Recent data from the Office for National Statistics show that the UK average house price has risen by 7.5% in January 2021, this is a decrease from the 8.0% seen in December 2020.
The country with the highest increase was Wales, where house prices rose by an average of 9.6% to £179,000. Meanwhile, the house prices in England rose by 7.5% to £267,000, Scotland rose by 6.9% to £164,000 and Northern Ireland by 5.3% to £148,000.
Average house prices peaked in December 2020 where they were at £250,448, these prices decreased in January to £249,309, but, on a seasonally adjusted basis, house prices remain unchanged.
This marks the first time house prices have slowed since July 2020, however, over the past four years, there has been a slowdown in the rate at which house prices have been increasing.
This is mainly due to a slowdown in the South East of England, the South East saw a price increase of 6.4%, London was similar to an increase of 5.3%, but, these percentages fall behind compared to the North West which saw an increase of 12.0%
The decrease in the rate at which house prices increase in the South of England is likely attributed to the coronavirus restrictions which have been put in place by both the UK and other countries.
The South of England, especially London is home to a large financial sector, but it also nurtures the UK’s tourist industry with its proximity towards historical buildings and royalty.
Hence, the lockdown measures which nations have imposed has starved the tourist industry of demand, causing a large number of workers within this industry to be furloughed.
The Furlough scheme only subsidises 80% of a workers wage, meaning the workers furloughed will have to save more to afford a house mortgage.
But why are these workers unable to purchase houses with the cutting of the mortgage deposit to 5%?
Due to the large supply of labour available within the tourist industry, wages are pushed down, because of this, these workers likely do not have large amounts of savings as their disposable income is limited.
Therefore, even with a reduction in the percentage required to deposit, workers in these industries still do not have enough cash, especially when Furloughed, to afford homes.
Additionally, homes in the South of England are typically more expensive as cities like London offer well paying, highly skilled work, so, there is a large influx of high-skilled migration into London which pushes house prices up, causing mortgages to also be expensive.
Also, due to London being home to a large tourist industry, the city attracts low skilled migration as opportunistic migrants come to the UK to seek better opportunities, further increasing house prices.
However, with net-migration decreasing post-Brexit, the demand for homes within London will also decrease, causing a slowdown in the percentage increase.
So, because of the reduction in incomes which workers within the South have been subjected to, as well as the fact that homes are typically more expensive despite cuts in mortgage deposits, workers are either not confident enough to purchase a home due to their limited savings or simply cannot afford the mortgage.
With all of these factors combined, the demand for homes in the South of England has decreased, illustrating why there has been a slowdown in the percentage increase.
Despite this slowdown in the South, the North West has seen a percentage increase of 12.0%, the Yorkshire and Humber regions have also had an increase of 8.9%
This higher percentage increase in the North has likely attributed to the government’s efforts of levelling the region up.
The government incentivising companies like Siemen’s to set up a factory that produces wind turbines near the Humber-Estery region has likely increased demand for housing.
The labour which the factory requires is likely engineers and other highly skilled professions. Despite being in high demand, this highly skilled labour is scarce in the UK as we have a shortfall of between 37,000 and 59,000 engineers.
Because of this, the supply of labour is limited, causing wages to be high which incentivises individuals to move to the Humber-Estery region to seek better paying, more fulfilling job opportunities.
This migration towards the Northern regions increases the demand for housing, thus causing a rise in the rate at which house prices increase.
Overall, the decrease in the rate at which house prices are rising in Southern regions could a more permanent trade, the government levelling up of Northern regions will likely lead to increased demand for housing in the North as the economy will no longer be so centralised within London.
With tighter restrictions on migration also being imposed, it’s likely the UK will see a decrease in migration from lower-skilled migrants, decreasing demand for housing within the South, so, with an increase in high-skill migration and more high-skill industries opening in the North, the North will begin to see higher house price increases compared to the South.
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