UK House Prices: A Historical Perspective on Trends and Government Interventions
- Dr Bidit Dey
- Jul 14
- 9 min read
Executive Summary:
Like many developed countries, the United Kingdom is currently facing a significant housing crisis. A shortage of supply, combined with rising demand, has driven up property prices, affecting both the rental and sales markets. The roots of this crisis can be traced back to historical legacies and various national and international political and economic events. The recession in 2008, Brexit, COVID-19, the Russo-Ukraine war, and global inflation have all profoundly impacted the UK economy and the property market. This article examines the historical trends and significant events that have shaped the property market. It also highlights and critically evaluates the new policy measures introduced by the recently elected government. Following this, the current state of the property market, including regional disparities, is presented and analyzed. The situation in London and Southeast England exemplifies how property prices are affected by the imbalance between supply and demand. This phenomenon is also prevalent in many other major cities and economically developed areas. Lastly, the article critically analyzes the implications of some of the policies undertaken by the current government.
1.0 Introduction:
The UK is currently grappling with a deepening housing crisis, leading to a sobering rise in homelessness, with many individuals and families finding themselves without a stable roof over their heads. Concurrently, the relentless surge in rental and property prices has constituted a landscape where the dream of a secure and comfortable home feels increasingly elusive. This ongoing crisis stems from a confluence of underlying issues, including a stark shortage of new homes, soaring demand, a complex planning system and a lack of policy support. Over the past decade, property values across the UK have generally increased, with occasional fluctuations caused by macroeconomic challenges, including Brexit and COVID-19. However, the crisis has a complex and variable nature. While certain regions have witnessed remarkable price surges, others have experienced sluggish growth or even declines. To illustrate, the average house price in the UK increased from £167,716 in January 2013 to £290,000 by the end of January 2023, representing a staggering 73% rise[i]. However, over the last two to three years, a notable shift has occurred; the market has begun to decelerate, a transformation closely tied to rising mortgage rates that has prompted a recalibration of property prices across the landscape.
This article conducts a forensic analysis of the UK property market, examining its various aspects to highlight trends, challenges, and relevant policy implications.
2.0 Historical background:
It is asserted that successive administrations have failed to effectively address this issue through the implementation of a more sustainable and comprehensive policy. The Town and Country Planning Act of 1947 is often cited as a contributing factor to the current housing crisis. While the act was intended to foster a more organized and aesthetically pleasing built environment, it has emerged as a significant barrier to the availability of affordable housing. The legacy of this legislation includes an overly restrictive planning system, which has severely limited housing supply, driven up land and property costs, and ultimately played a substantial role in the ongoing housing crisis in the UK.
Until the 1950s, house building in the UK was primarily managed by local councils. However, in the 1960s, private sector initiatives began to play a significant role. The introduction of the Right to Buy Act in the 1980s allowed council tenants to purchase their properties at a discounted rate, helping many to enter the property market. While this policy was seen as a positive development, it lacked long-term vision. The properties sold to tenants were not replaced with new construction, leading to a persistent imbalance between housing demand and supply.
The crisis remained manageable until the latter part of the 20th century, when population growth, job creation, and increased demand in both rental and purchase markets became pronounced. Consequently, when the country faced the global financial crisis and recession in 2008, the issue escalated into a significant problem. One of the most notable effects of the recession on the UK economy was observed in the property market. This led to a sharp decline in property prices, which dropped by approximately 20% between 2007 and 2009. It marked one of the most significant corrections in house prices in recent UK history, leaving many homeowners in a position of "negative equity."
The era of easily accessible high loan-to-value (LTV) mortgages, including those offering 100% financing, has come to a sudden halt. Buyers now face the requirement of substantial deposits, often 25% or more, compared to the previous average of around 10%, along with strong credit scores to qualify for mortgages. Various factors, including government intervention and monetary policies, have driven the recovery of the property market following the recession. For over a decade, the Central Bank maintained a low base rate, making borrowing more affordable and stimulating property sales. Additionally, the Bank of England implemented quantitative easing by purchasing government bonds to inject substantial amounts of money into the economy. This action helped suppress long-term interest rates, which in turn indirectly benefited mortgage rates.
In the following years, the UK government implemented a variety of schemes, including popular "Help to Buy" packages, to assist first-time buyers in obtaining mortgages. Concurrently, incentives on stamp duty further stimulated the property market. As a result, the market began to recover, with prices steadily increasing for more than a decade, even amid ongoing economic challenges. However, the dual impact of Brexit and COVID-19 disrupted the economy once again. In response, the government reintroduced some incentive schemes, such as stamp duty relief, in the post-pandemic period to avert a potential crisis in the property market reminiscent of a post-recession scenario.
3.0 Current scenario
In 2022, the UK economy experienced significant challenges due to high inflation, which stemmed from post-Brexit and post-COVID shortages of workers and supplies, as well as the impacts of the Russo-Ukraine war that triggered a surge in energy prices. The mini-budget introduced by then-Prime Minister Liz Truss in autumn 2022 significantly destabilized the financial market. Consequently, the number of mortgage applications and approvals plummeted sharply in the final quarter of 2022. Monetary policies aimed at curbing inflation resulted in an increased base rate, compelling mortgage rates to rise. The Bank of England had begun raising its base rate in December 2021, reaching 5.25% by August 2023. As a result, fixed-rate mortgage deals saw considerable increases; for instance, the average rate on a two-year mortgage (75% LTV) surged from approximately 1.57% at the beginning of 2022 to over 6% by late 2023. Although there have been some fluctuations, mortgage approval levels for house purchases have generally remained significantly lower than the prior period of heightened activity, such as the post-pandemic boom. Throughout much of 2023, market activity was notably subdued.
Since 2024, inflation has decreased, leading to a reduction in the base rate to 4.25%, with expectations of further cuts by the end of 2025. The country welcomed a new government in the summer of 2024. One notable shift in policy during this administration is a more pragmatic approach to utilizing green belts. In the UK, green belt land is designated as open space, typically surrounding urban areas, to prevent urban sprawl and preserve the countryside. This designation aims to control the outward expansion of towns and cities, preventing them from merging and protecting the character of existing communities. The current government intends to repurpose ‘grey belts’—such as underutilized car parks, derelict industrial sites, and old petrol stations—within and around green belts for new housing developments. That said, a study suggests that the country needs approximately 340,000 new homes each year to meet current demand. The UK government aims to achieve that target. However, it will require a Herculean effort for the current government to reach anywhere near the target during their tenure. In the next section of this article, a comparative scenario of the UK property prices in different regions is presented to demonstrate the complex and variable nature of the crisis.
4.0 Monetary policy and mortgage rate
The Monetary Policy Committee (MPC) held the interest rate steady during its meeting in June 2025. The following review is set for August 7, 2025. This decision comes in light of a rise in the inflation rate over the previous quarter. The annual inflation rate for the Consumer Prices Index (CPI) in the UK was recorded at 3.4% for May 2025, down slightly from 3.5% in April 2025. The Bank of England aims for an inflation rate of 2%.
A decrease in the Bank of England's base rate doesn't necessarily lead to an immediate and uniform drop in mortgage rates for every borrower. Many homeowners in the UK have fixed-rate mortgages, which lock in their rates for a specified period. Consequently, their payments stay the same until the end of the fixed term, regardless of changes in the base rate.
Mortgage rates are influenced by various factors, including lenders' funding costs, profit margins, and the overall economic outlook and uncertainty. It's essential to note that commercial banks do not rely solely on borrowing from the Central Bank; therefore, the Bank of England’s base rate is just one of many factors that affect borrowing rates. Additionally, lenders must maintain a margin to mitigate risks associated with future uncertainties. As a result, if there are concerns about rising inflation or if the economy fails to remain robust, lenders are likely to be hesitant in lowering rates. Moreover, the Bank of England's communication regarding prospective rate cuts is significant. If they indicate a gradual approach to reductions or suggest that future cuts are not guaranteed, it can dampen market expectations and limit the extent to which mortgage rates decrease.
5.0 Trends in the UK house prices:
Figure 1 illustrates the trend in house prices within the UK. This trend reflects the broader changes in the macro-environment previously discussed. The average house price increased significantly from £110,000 to £190,000, marking a steep rise of approximately 70% between 2002 and 2007. However, the subsequent recession led to a decline in average prices of about 16%, and the graph remained relatively flat for nearly four years before beginning to rise again in 2014.
Despite the Brexit referendum and consequent economic and political uncertainties, property prices steadily increased between 2014 and 2020, likely due to government policies regarding stamp duties and help-to-buy schemes. The accompanying graph illustrates some erratic fluctuations during the pandemic, followed by a decline in 2022/23, which can be attributed to high inflation and rising mortgage rates resulting from Liz Truss’s mini-budget, along with concurrent global economic uncertainties.
However, the average house price and the trend are not same across the UK. The scenario in England, which is substantially larger than Scotland, Wales and Northern Ireland, mostly reflect the national trend. The average price as well as the increases and fluctuations across England happened in the same manner as for the entire UK. Figure 2 illustrates this trend.
While the general trend in Southeast England mirrors that of the rest of England and the UK, the disparities in average prices are quite pronounced. This region primarily includes London and its surrounding counties, such as Kent, Surrey, Sussex, Essex, Hertfordshire, Buckinghamshire, and Berkshire. The Southeast plays a crucial role as a "commuter belt" for London, with many individuals choosing to live in the surrounding counties and travel to the city for work. This proximity to London boosts demand in these areas. Furthermore, population growth and changes in household compositions—such as the increase in single-person households—contribute to the overall rise in the number of households in need of housing, further fueling demand.
It tends to be more affluent than many other parts of the country and is experiencing a rising younger population, which is driving increased demand in both the sales and rental markets. Consequently, in 2007, the average price was approximately 18% higher than the national average. By 2024, however, the average price in the South-East has escalated to about 25% above the average price in England and nearly 30% higher than the overall UK average. This significant difference can largely be attributed to the higher economic and population growth experienced in London and its surrounding areas over the past 18 years. The region has also higher wages and demand for housing compared to the rest of the country.
In summary, London and the Southeast exemplify the classic principles of supply and demand, a phenomenon observable in many major cities worldwide.
6.0 Conclusion
The housing market in the UK faces a complex interplay of trends and challenges that are closely linked to the country's broader economic and developmental issues. On one hand, there is an acute demand for houses that demands the government's attention to ensure the wellbeing of its citizens. On the other hand, creating affordable options for both renting and purchasing homes presents an additional challenge. Consequently, the availability and affordability of housing—two factors that are inherently connected—continue to pose significant issues for the government.
Moreover, it is essential for the government to safeguard the housing market against potential shocks that could lead to price declines, putting homeowners at risk of negative equity. In light of this, constructing new homes emerges as one of the most sustainable solutions, although it is not an immediate remedy. The government has reinstated mandatory housing targets for local councils throughout England, aiming to deliver 1.5 million new homes over the next five years, which breaks down to approximately 370,000 annually. They have also indicated that they will take action if councils do not produce or adhere to their Local Plans.
Given the complex nature of the issue, a variety of measures are required, spanning both short- and long-term solutions, aimed at different segments of the population. This includes individuals in need of council-supported housing, those looking to rent, and others aspiring to enter the property market or who already own homes. It is essential to support self-build, custom-build, and community-led housing projects by providing funding and facilitating access to land and planning permissions for community groups. In essence, this is a race against time and will be a real test of the current government.
Dr Bidit L. Dey
Associate Professor in Marketing
Sheffield University Management School (the University of Sheffield), UK
LinkedIn: Bidit Dey | LinkedIn
