The total value of all homes in the UK rose to a record £6.79 trillion last year with the South East outperforming London, new research shows.
Overall growth of £491 billion underscored housing’s status as the UK’s greatest store of wealth, according to latest analysis from international real estate adviser Savills.
It means that privately held housing wealth has passed the £5 trillion mark for the first time with Slough the top location with a rise of 20% in housing value while in parts of the north of England prices have still not recovered from the economic downturn.
Gains continue to favour owner occupiers with low or no borrowing and private landlords, as total mortgage borrowing remained virtually unchanged last year. However, the report warns that economic uncertainty and mortgage regulation mean future generations will struggle to accumulate housing wealth.
‘Over the past three years, low interest rates and strong consumer sentiment have combined to deliver very strong value gains. But we are unlikely to see this pattern repeated,’ said Lucian Cook, head of residential research at Savills.
‘Economic uncertainty in the short term and more rigorous stress testing of mortgage lending in the longer term, will hold back house price growth and limit the ability of future generations to accumulate housing wealth,’ he added.
London and the South East again showed the strongest growth, but gains are more evenly distributed than at any point since the global financial crisis. Over the past five years, these two regions with just a quarter of all UK homes, have accounted for well over half the UK’s total value growth. In 2016 their combined value crossed the £3 trillion line.
By contrast, the Midlands, North, Wales, Scotland and Northern Ireland combined have 57% of all homes but just 36% of the value, as housing market recovery in locations further from the capital continues to lag but the report adds that there are signs of change and new star performers are emerging.
The South East closed the gap on the capital for the first time since 2004 as London growth began to slow. Homes in the South East added £121 billion to their total value in 2016 compared to £112 trillion in London.
The most expensive London boroughs of Kensington and Chelsea, Westminster, Hammersmith and Fulham, Richmond and Camden lost £9.6 billion or 9% of their £105 billion five year gains due to the increased stamp duty burden. This was more than made up by growth in outer London driven by buyers seeking more affordable housing.
A total of £35 billion was added to the housing stock of Barnet, Croydon, Tower Hamlets, Brent and Havering in 2016, with Barnet recording the highest growth, adding £8.9 billion in housing value.
Slough was the standout performer beyond London, rising 20% to total £15.6 billion, as the search for value and connectivity to the capital boosted buyer demand while Bristol added £6.6 billion in 2016 and passed the £50 billion mark for the first time, Cambridge values were up £8 billion in five years to £20 billion, York was up £3.9 billion in five years to just under £20 billion and the Birmingham suburb of Solihull rose £2.6 billion to just over £25 billion.
But there are still laggers, in particular parts of the north of England, where weaknesses in the local economy suggest house price recovery is still some way off. This is seen in locations such as Hartlepool, where housing value fell by £76 million and Burnley, down £122 million over the past five years despite a £217 million boost in 2016.
The research also shows that owner occupied homes are far the largest store of wealth, accounting for almost £4.6 trillion of housing value. But it is home owners without mortgage borrowing who have accumulated far the most housing wealth, up 42% in five years compared to 19% for those with a mortgage, in part due to existing owners paying down their borrowing.
Private landlords, who account £1.4 trillion of housing value and almost £1.2 trillion of net housing wealth, saw the total value of their properties rise 64% in the past five years, a combination of increased stock levels and rising demand from younger households unable to access home ownership.
But the really stark figures are revealed by looking at how owner occupiers’ housing equity is split across the generations. The over 65s now hold £1.42 trillion, or 43% of all equity held by owner occupiers.
By contrast, the under 35s, the generation struggling the most to access home ownership, hold just £70 billion or 5% of that equity pot, while the 35 to 49 year age group alone account for around a third of all owner occupier debt.
‘Housing equity has always been weighted to older generations who have paid down their mortgages. But since the credit crunch we’ve seen the generation gap widen significantly as younger buyers increasingly struggle to get onto the housing ladder and older home owners live longer and accrue higher levels of equity through house price growth,’ Cook explained.
‘High house price to income ratios and mortgage regulation suggest this pattern become even more entrenched in the next decade,’ he added.