The war in Ukraine and the mini-budget of former Prime Minister Liz Truss last year had caused a jump in interest rates which left domestic buyers struggling.
The property market in the United Kingdom is becoming increasingly attractive for foreign buyers, but it is widening the divide between richer homeowners and high-interest mortgage holders.
The war in Ukraine which started in February last year, along with the mini-budget of former Prime Minister Liz Truss in September last year, had caused a jump in interest rates which left domestic buyers struggling.
However, house prices have since cooled and mortgage offers are on their way down, along with a weakening of the British pound.
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The UK property market has repeatedly proven its resilience, but every period of economic hardship puts it under pressure, said observers.
Soaring costs of living and the subsequent raising of interest rates in a tumultuous 2022 have created a challenge for home buyers and homeowners.
Trade association UK Finance’s director of mortgages Charles Roe said: “As a result of that volatility in the financial markets and particularly in the hedging market, the futures market for interest rate swaps, what we found is that some lenders couldn’t price their products, so they withdrew the products from the market.”
The situation has since stabilised. It is making the market particularly attractive to overseas buyers and helping to prevent a dramatic house price slump in the capital.
Mr Ed Lewis, head of residential development at Savills, said: “I know what the hurdles are for, particularly the younger age group, getting into the property ladder.”
He added: “But London doesn’t work without it being an international city. And London doesn’t get built without international investment.”
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THE BUYERS FROM ABROAD
Prices at the top end of the market have seen little change, and that is widening the gap between richer homeowners and those with high-interest mortgages.
The rising interest rates signalled the end of a long era of cheap borrowing.
The last time the base rate of interest was as high as the current rate was in 2008, with the average UK property price having risen 72 per cent since then.
Foreign buyers, many from Asia and the Middle East, have contributed to the jump.
Dr Filipa Sa, a senior economics lecturer at King’s College London, said: “If we keep foreign investment constant at the level of the year 2000, we see that in 2019, house prices would have been about 17 per cent lower.
“I look at the effect on the price to income ratio, which is a measure of affordability, and I see also that foreign investment increases the price to income ratio. The effect is also quite big and statistically significant.”
While foreign investors tend to buy at the top-end of the market, researchers said that there is a knock-on effect driving prices up overall.
An additional 2 per cent tax is levied on foreign buyers, but estate agents noted that it has not dented the demand, due in no small part to the UK’s limited housing supply.
That is the greatest challenge for the market currently, but there remains no consensus on how to solve it, said observers.
By Fabian Koh