5 Reasons why house price is high in the UK

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The United Kingdom is one of the places in the world where house prices are very high. This is the reason why a lot of people ask the question why are houses so expensive in the UK?

As a first-generation immigrant living in the UK, I have been through the house buying process a couple of times. As well, I worked in a Local Government Authority Planning Department where decisions were made on where houses were built.

I thought I should use this article to give you some reasons why houses are expensive in the UK.

Planning Law

It is important to start here because planning law plays a big part in house prices in the UK.

Unlike most parts of the world, getting permission to build a house is extremely difficult. To build any house, either a single unit or multiple units like an estate, you need to apply to a Local Authority.

Before The Town and Country Planning Act 1947, it was easy to build houses anywhere you want with fewer restrictions. Since the Town and Country Planning Act 1947 came into place, planning permission is required from the Local Authority for land development.

A Planning Officer will look at your application and use a lot of criteria to judge if your application is to be approved or not.

One of the most important criteria is to check if the house you want to build is inside a “development boundary”. In plain English, this means, is your house going to be built outside an already developed area or is it going to be outside a completely separated village, town, or city?

There are other important criteria like,

These are protected areas. The first three mentioned above are areas designated as land used to protect wildlife and agricultural lands.

Also, they are lands with an amazing landscape which the government think is useful for leisure and help people connect with nature. Another important function of protected areas like greenbelt and significant gaps is to avoid towns and cities from joining together.

If developments are allowed in those areas, it won’t take long before two towns merge.

Because of strict planning permission requirements, fewer houses are built and this has a significant effect on the price of existing houses.

Expensive land makes house expensive

When you think about it properly, building a house is not that expensive. It is the land itself that is expensive in the UK and this is one of the reasons why house prices are high.

There is a general belief in the UK that there isn’t enough land to build on. While this might look like it is true because Britain is an island. However, it’s possibly a myth as mentioned in an article on BBC website.

Only about 8.8 percent of UK land is classified as built on but people still generally believe that land is a scarce asset. If something is perceived as scarce then the law of economics states that it will be expensive.

I am not saying planning law should be relaxed for the sake of providing housing.

I understand we need greenspaces, parks and gardens. However, there are house shortages in the UK, if more houses are built the price of properties won’t be too high.

Low-interest rate

Since the economic crash in 2008, the cost of borrowing to buy a house has significantly reduced. This has made it possible for a lot of people to get into the property market because it is easy to borrow money.

The interest rate in the 90s was around 15 percent. If you compare that to now it is a massive difference because the interest rate is now as low as 0.1 percent as at the time of writing this article.

The cost of getting a mortgage nowadays is generally much lower so there are more people buying houses which is pushing the price of properties up.

As well, buying a house is now cheaper than renting. This is as a result of the low-interest rates for buying a house.

This also increases the number of people who want to buy a house and the number of houses available is limited therefore increasing competition.

Buying a house is now even considered an investment opportunity, something that can’t be said with renting. This is because buying a house gives a better return on investment for investors than even shares.

When an investor considers rentable income vs mortgage interest payments, he is easily more attracted to purchasing an house as an investment.

Foreign buyer and buy to let

Yes the housing market is volatile but it hasn’t stopped it from being a good investment option. When consistency is in-play, the ROI on buying a house regularly outperforms the stock market.

This simple truth is what brought about the emergence of buy to let investors. The knock on effect is an increase in the demand for houses.

The UK has now become a haven for rich people around the world to keep their money. One of the ways to keep money is to invest in valuable assets like real estate.

London especially is a chosen location for foreign nationals like Russians and Arabs to name a couple. This is the reason why the price of houses in London have skyrocketed in the last few years.

And, a lot of UK residents who are close to retirement or planning for retirement look to properties as part of their retirement plan. They get into buy-to-let which is a good investment.

Buy-to-Let is considered by many as a less risky and reasonably safe investment option. People investing in buy-to-let do create competition in the property market in the UK and this has a significant effect on the price of properties.

British homeownership mindset

Ever heard of the phrase ‘an English man’s home is his castle.’ This is really true because British people are obsessed with homeownership.

If you compare the UK to other European countries like France and Germany, there is a big difference in peoples attitude to homeownership.

While people are quick to think about owning a home as soon as they can afford it, this is different in other European countries. In other European countries, they are happy to rent a house or apartment than to commit to borrowing money to buy a house.

Final Thought

It’s truly amazing that given the increased price of buying a house in the UK, many people still prefer this option. But can we say it’s as a result of the high cost of renting a house? Or does it have more to do with a cultural shift in the mindset of UK citizens towards owning a house.

Either way, the expensive nature of housing isn’t without its disadvantages as future rise in house price to earnings ratio is a cause for concern.

This means people will most likely take larger mortgages which will surely affect the standard of living.

While there isn’t an immediate concern about the rise of housing cost, it is surely a concern for the future.


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