We covered the different measures used when assessing the housing market last week, due to the discrepancy between prices rising at ‘record highs’, versus the very low volume of housing sales, and the news that the number of estate agents declaring insolvency jumped by a third last year.

We know that UK residential property transactions fell by 12 per cent in the year up to June 30 to 861,210, the lowest level in more than 10 years. Twenty per cent of houses for sale have been on the market for more than six months.

The word ‘incongruent’ comes to mind, as house demand would normally create the upward drive in prices being reported, but that’s not evident in sales.

Statistics can be made to look however you want them. Let’s look at reliable facts.

I’ll start with the house price to rent ratio. Simply put, it’s the cost of buying versus renting a property. Why does that matter? A high price-to-rent ratio suggests  buying is expensive relative to renting, often signalling a potential housing bubble. The reverse is true also.

If I showed you the graph over the last six months, it’s a dramatic downturn showing that buying has become more affordable. Indeed, this ratio shows a large upward spike from Q2 in 2020 to Q3 2022, followed by an equally steep decline to now. Historic prices and averages going back to 1968 are a bit unhelpful given the comparisons of completely incomparable markets – lower homeownership etc, but for context, in 1968 and 1996 the ratio was around 49 (remember lower equals better to buy). Between 1996 and 2007, the ratio rocketed to 117 meaning house prices left rent behind. When the boom arrived during covid lockdowns as people surged to get some space, the ratio rocketed in Q2 2020 from 111 to 129. The last available reliable statistic I can find is the end of Q1 this year where this ratio fell back to 117.6, below the five-year average of 119.47.

The anticipation for UK residential rental prices is for a cumulative increase of nearly 21 per cent by 2028. Five per cent of this is anticipated in 2024. Rental growth has surged since 2021, and March 2024 experienced a decade-high annual percentage growth, hence the fall in price to rent ratios (housing is becoming cheaper relative to renting). As those rents increase, the need to buy becomes more desirable, relative to rental values.

Average UK private rents increased by 8.4 per cent in the 12 months to September 2024 whereas UK house prices increased by 2.8 per cent to £293,000 in the 12 months to August 2024. This is the price to rent lowering.

In 2008, home ownership in the UK peaked to 72.5 per cent and currently sits at c64 per cent having not recovered from the 2008 crash.

January 2023 saw mortgage approvals at just 39,750 and that has steadily risen to over 64,000 which is still below the norm in terms of demand. Construction orders have been horrific but bolted 28 per cent year on year according to the latest data, boosting the supply of new homes.

Looking at mortgage rates, Zoopla capture the ‘affordable house price’ by looking at household incomes and mortgage rates, a ratio I might consider to be pretty accurate in terms of affordability. At the end of 2023, this ratio calculated house prices to be overvalued by c13 per cent, nothing like any previous bubbles but of course, deep in the mind of the purchaser is the interest rate and where it could be going coupled with the misunderstanding of this point. ‘Whether you think it is, or whether you think it isn’t, you are right’, is the sentiment which drives many markets.

As this column pointed out: in June 2008 - rates would fall; in 2018 – ‘stress test your mortgage at seven per cent’; in 2021 – house prices would come under pressure because of the reverse impact of covid purchasing and inflation; and in early 2022 – I said ‘rates would not be rocketing to the sky so don’t fix at high levels for long’, now the outlook for rates and the actual pricing is well below what people believe to be true.

I’ll cover that next week in more detail alongside where the market is turning.

For a complimentary Mortgage Interest Rate Guidance Report, please email my Mortgage Director Pat Greene on pgreene@wwfp.net or call 023 8064 9674. .

Peter McGahan is the Chief Executive Officer of Independent Financial Adviser Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.