Housing haves and have nots gap grows

The total value of the UK’s housing stock has risen from £3.6 trillion to £5.2 trillion over the past ten years, but the balance of housing wealth continues to tilt from North to South and become ever more concentrated in the hands of mortgage free homeowners, according to new data from international real estate adviser, Savills.

Valuing Britain, the annual measure of total housing value by Savills research, reveals a £186 billion rise in 2013, with London accounting for over £100 billion of the gain.  With the exception of Wales, the North East and North West, all regions saw an increase in the value of their housing stock.

For the first time, Savills has measured both housing value and levels of borrowing at a local authority level, revealing highly localised variations in market strength, even within London and the South East.  It also shows that the big winners over the past five years have been owner occupiers without mortgage debt, while the value of private rented stock has grown strongly at the expense of mortgaged owner occupier homes.

“The housing market remains deeply divided and recent gains have been unevenly spread,” says Lucian Cook, head of UK residential research at Savills. “The substantial wealth tied up in housing is becoming increasing concentrated in fewer hands in a market where housing equity – heavily concentrated in London and the South – has become the key driver.”

North to South tilt: The shape of the housing market recovery post credit crunch means that the total value of London, the South East, South West and Eastern regions has risen by £435 billion over the past five years, with a net loss of £206 billion across the other regions.

London and the South East account for just over a quarter (26%) of the UK’s housing stock, but 42 per cent of total value, with London’s homes now worth a total of £1.226 trillion, the South East £950 billion.

The dominance of London: Homes in the ten wealthiest London boroughs are now worth a total £609 billion, 9 per cent higher than the value of Scotland, Wales and Northern Ireland combined.  The two most valuable boroughs – Westminster and Kensington & Chelsea – have a combined value of just over £200 billion, 15 per cent more than the total housing stock of Wales.   The star performer of 2013 was Wandsworth in south west London, where the total value rose by £8 billion, a rise of 13.7 per cent compared to 9.5 per cent in Westminster and 8.8 per cent in Kensington & Chelsea.

Beyond London, the markets showing the highest growth in the past year have been Aberdeen (+£1.7bn) and Elmbridge in Surrey (+£1.5bn); over five years it has been Brighton and Hove (+£5bn).

The rise of private renting:  The analysis also highlights the rise and rise of private renting.  The sector’s value rose by £76 billion in 2013, more than any other sector, with total value now edging towards £1 trillion (£989bn) for the first time ever.  The sector now accounts for almost a fifth (19%) of the total value of all UK homes, up from 12 per cent ten years ago.  Over the same period, owner occupied homes with mortgages have slipped from holding 44 per cent of total value to 35 per cent of total value.

Equity vs debt: The total value of the owner occupied sector, which represents 69 per cent of the total value of all housing, rose by £84 billion in 2013 to £3.6 trillion, but there has been a significant divergence in the performance of mortgaged and unmortgaged owner occupied stock.

Mortgage debt accounts for just 24 per cent (£1.27 trillion) of the total value of UK housing, up from £1.19 trillion at the peak of the market in 2007, but amongst owner occupiers with a mortgage, the average mortgage debt accounts for 54 per cent of total value.

The UK’s 8.4 billion unmortgaged owner occupiers have seen their total wealth rise by £86 billion to £1.8 trillion since 2008.  By contrast, a fall in the number of mortgaged owner occupied households means the total value of properties in this category has fallen by £172 billion since 2008, to £1.8 trillion, of which just £856 billion is equity.

“Ten years ago, homes owned outright had total equity one third higher than those with a mortgage: today it is double,” says Cook.  “The mortgage market is showing signs of freeing up, but it is highly unlikely to ease enough to reverse this trend in the foreseeable future.”

This means that owner occupiers without mortgage debt have housing wealth averaging £214,000, while the owner occupier with a mortgage has on average £98,000 of equity, £11,000 less than five years ago.

Haves and have nots – the implications for market strength at a local level:  London has the lowest average levels of debt relative to the value of all privately held stock, at 22 per cent, with total equity of £902 billion, while the North East has the highest, at 29 per cent, leaving total equity of just £81 billion.   Average debt levels for owner occupied stock are slightly higher, with the South West having the lowest levels of borrowing relative to value at 24 per cent, rising to 32 per cent in the North East.

However, variations are highly localised.   The list of local authorities with the lowest levels of mortgage debt among the owner occupied sector is topped by the London boroughs of Kensington & Chelsea (8%), Westminster (9%) and the City of London (12%) and closely followed by Eden in the North West (12%) and West Somerset (13%).

“The store of housing wealth in the most valuable boroughs of London is unmatched by other locations,” says Cook.  “Beyond these central locations, mortgage debt is lowest in areas where baby boomers are most concentrated, or where housing equity built up in the capital has been imported, such as higher value commuter and second home hotspots,”

By contrast, the most indebted local authorities are Corby in the East Midlands (42%), Thurrock in Essex (43%), Barking & Dagenham (47%), Newham (47%) and Slough (49%).  “The level of housing debt among those with mortgages is particularly high in these locations,” says Cook.  “This will continue to act as a constraint on house price recovery in these areas, not least because they will be most susceptible to interest rate rises in due course.”

Debt levels amongst mortgaged owner occupiers in the South peaks in Slough (75% debt) and Newham (76%) in London, but Blackpool (79% debt) and Burnley (80%), both in the North West, top the list of most indebted locations.

“Though the geographical spread of housing growth will change over the next five years, we expect a continuation of these trends, with the equity rich markets outperforming those with high levels of mortgage debt,” and opinion will remain deeply divided as to whether house price growth is a good or bad thing.”

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