Why Are Houses in the UK So Overpriced?

The UK is undoubtedly one of the most expensive countries with the highest housing prices per square inch in the whole of Europe, as Statista reports. To make things worse, UK houses are also smaller than those in other countries such as the US, so why the astronomical real estate prices?

The high prices of houses in the UK can be attributed to factors such as low-interest rates on home purchases and foreign real estate investments. Other factors, such as high population growth, wealth inequality, and competition from foreign investments, have also increased housing prices. 

In addition to these, several other factors have resulted in the record high prices of real estate in the UK, as I will discuss in the rest of this article. Let’s get started. 

Factors Affecting the Price of Real Estate in the UK

The high prices of real estate are largely down to the following factors. 

Limited Availability of Land for Development

The UK has a relatively small land area compared to some other countries, which makes it more challenging to build new housing. 

This can be especially true in urban areas, where space is at a premium.

The limited availability of land for development creates a housing shortage, which drives up the prices of available houses. 

High Demand Relative to the Available Supply of Housing

Strong demand for housing is another factor that has contributed to the high cost of real estate in the UK. 

The demand has led to competition among buyers for the available units, which consequently drives up prices. Most buyers also want to get houses in urban areas, where the demand is already fairly high, making it nearly impossible to get a house at a reasonable price. 

Wealth Inequality

There has been a trend of increasing wealth inequality in the UK recently, with a larger share of wealth concentrated among a smaller group. This makes it more difficult for lower-income people to afford houses, as prices may be out of reach.

The wealthy are willing to pay high prices, which gives developers the incentive to charge even more due to the high-profit margins.

Wealth inequality also affects the availability of affordable housing. Developers may be more likely to build higher-end properties aimed at wealthy individuals that will generate higher profits rather than more affordable housing.

Foreign Investments in the UK Real Estate Market

Property investments from foreigners have driven up the prices of housing in the UK, as people often have more financial muscle to readily buy higher-end properties. 

Thus, local buyers compete with investments such as foreign individuals, companies, and governments. 

These investments are driven by several factors, such as the perceived stability and attractiveness of the UK as a place to live or invest. Another important factor is the perceived potential for capital appreciation. 

Can You Get Affordable Housing in the UK?

If you’re looking to buy a house in the UK, you can easily be discouraged by the prices alone. However, if you prefer to be a homeowner rather than pay rent all your life, you will have to brace yourself for some impact.

You can get affordable housing in the UK. Still, you’d have to sacrifice certain amenities or features, such as the quality of the housing and accessibility or desirability of the location. 

Generally, house prices in the UK tend to be higher in urban areas and popular tourist destinations, while prices may be lower in rural or less developed areas.

‘Cheap’ Is Relative

Buying a cheap house will depend on your definition of ‘affordable,’ and how much you’re able and willing to spend. For some people, a “cheap” house may be one that costs a few hundred thousand pounds, while for others, it may be one that costs less than 100,000 pounds.

It may also vary depending on the type of property being considered. For example, a small studio apartment in the city centre may be relatively expensive at £300,000. Meanwhile, a larger, detached house in a suburban area may be affordable.

Average houses in the UK are at a record high price of £296,000 (about $358,105) in August 2022, according to ONS — a 13.6% growth from last year. In comparison, the average price of a house in the US in 2022 is $348,079 (about £287,722).

This is no surprise since the prices have been increasing steadily every year since 2009. 

Tips for Sourcing Cheap Real Estate in the UK

Consider Fixer-Uppers

Find more affordable housing by considering properties that need renovations or repairs, also known as “fixer-uppers.” These properties may be less expensive because they are not in their best condition and may require some work to bring them up to standard.

However, it is essential to carefully assess the condition of the property and the cost of the necessary repairs before making a decision. 

Buying a fixer-upper may not be a good financial decision if the repairs are extensive or too costly. Getting a home inspection to identify potential issues that may not be immediately visible is also a good idea.

Look for Properties Being Sold by Individuals

Properties listed by individuals may be less expensive because the seller is not paying a commission to a real estate agent, which results in lower prices.

To find properties that are being sold by individuals, you may want to look at classified ads in local newspapers or online, or ask friends and family if they know of anyone selling a property. 

You can also check websites such as Zoopla or Rightmove, which list properties for sale by both individuals and real estate agencies.

It is important to keep in mind that buying a property from an individual can be riskier than buying from a real estate agency. The seller may not have the same level of expertise or knowledge in the real estate market, and may be overcharging you or forget to divulge necessary information. 

Do your due diligence and research the property thoroughly before making a decision. You may also want to consider working with a real estate lawyer or conveyancer to ensure the transaction is handled properly.

Consider Alternative Financing Options

If you are having trouble finding a property within your budget, you may want to consider alternative financing options, such as shared ownership or a mortgage with a smaller down payment.

There are several alternative financing options that may be available to you in the UK, including:

• Shared ownership: This allows you to buy a portion of a property and pay rent on the remainder. It can be a good option if you cannot afford to buy a property outright.
• Help to Buy: The Help to Buy scheme is a government-backed program that provides financial assistance to first-time buyers who cannot afford the deposit on a property.
• Government-backed mortgages: The UK government offers several mortgage programs that may be available to first-time buyers, including the Right to Buy scheme.
• Smaller down payment: Some mortgage lenders may allow you to make a smaller down payment on a property, which can make it more affordable to buy. However, this may result in higher monthly mortgage payments.

Wait For a Better Deal

There’s a ray of hope for home buyers in the UK, with economists predicting a decline in the spiralling prices of houses in 2023, according to Zoopla. If you’re in the market for a house, you might want to wait a little longer if you can, because you might be able to secure a better deal for yourself. 

Conclusion

The high price of houses in the UK can be attributed to several factors, which have combined to create a situation in which houses are increasingly unaffordable, particularly for those who are young or on low incomes. 

While there are no easy solutions to this problem, addressing the underlying causes of high housing prices will require a multi-faceted approach. The approach should include measures to increase the housing supply, reduce the demand for housing, and make homeownership more affordable. 

Sources

• Economics Help: Why are UK house prices so high?
• Expatrist: Why Are Houses so Expensive in the UK?
• The Guardian: Why are houses so expensive? You asked Google – here’s the answer
• Money to the Masses: What is going to happen to UK house prices?
• Bloomberg: UK House Prices Set to Drop 10% or More in 2023, Economists Say
• Statista: Average house price in the UK 2007-2022