In recent discussions about the UK housing market, some commentators have suggested that despite high nominal prices, homes may actually represent better value now than they have in a decade. The claim centers on the difference between nominal prices (the actual price tag) and real values (what those prices mean after adjusting for inflation). But is this assessment accurate when we look at longer timeframes? Let’s analyse the data across 20 years to evaluate these claims.
Understanding Nominal vs. Real House Prices
When we discuss house prices, we typically focus on the listed price—£300,000, £450,000, and so on. These are nominal prices, the raw numbers that don’t account for the changing value of money over time. However, economists often prefer to examine real prices, which adjust for inflation and provide a more accurate picture of true value over time.
The Impact of Recent Inflation
Since 2022, the UK has experienced significant inflation:
- 2022: 9.1% (a 40-year high)
- 2023: 7.9%
- 2024: 3.2% (gradually cooling but still above the Bank of England’s 2% target)
According to data from the Office for National Statistics (ONS) and major UK house price indices (Nationwide and Halifax), this period of high inflation has indeed impacted real house values in ways that aren’t immediately apparent from nominal prices.
20-Year Perspective: How House Values Have Changed
Our analysis of UK housing data from 2004 to 2024 reveals some surprising trends:
Real Price Changes
- 20-Year Change (2004-2024): Real house prices have increased by approximately 6.1%, representing an absolute increase of about £16,745 in today’s money
- 10-Year Change (2014-2024): Real prices have risen by about 20.0%, an increase of approximately £48,423 in real terms
- Recent Change (2022-2024): A decline of 8.6% in real terms, equivalent to about £27,355
Peak Values
- The peak for real house values was actually in 2021 during the post-lockdown housing boom
- Current real values (2024) are about 9.9% below this peak, representing a drop of approximately £31,938
Affordability Metrics Across Time
Looking at key affordability indicators across these periods:
House Price-to-Income Ratios
- 2004: 7.0x average income
- 2014: 6.6x average income (most affordable period in our study)
- 2022: 8.9x average income (peak unaffordability)
- 2024: 8.5x average income (slight improvement)
Mortgage Affordability (monthly payment as percentage of average income)
- 2004: 42.0% of monthly income
- 2014: 33.8% of monthly income (most affordable in our study)
- 2022: 42.0% of monthly income
- 2024: 52.5% of monthly income (least affordable due to higher interest rates)
This analysis reveals that while house prices in relation to incomes have improved slightly since 2022, the higher interest rate environment has significantly worsened overall affordability from a mortgage payment perspective.
Notable Periods in UK Housing
Our 20-year analysis highlights several distinct periods in UK housing:
2004-2007: Pre-Financial Crisis Boom
- Strong real price growth
- Relatively high but manageable interest rates
- Price-to-income ratios deteriorating
2008-2013: Post-Crisis Adjustment
- Significant real price falls (especially in 2008-2009)
- Lowest nominal prices but offset by economic uncertainty
- Beginning of ultra-low interest rate environment
2014-2019: Steady Recovery
- Gradual real price appreciation
- Very low interest rates improving affordability
- Regional divergence increasing (London outperforming)
2020-2021: Pandemic Boom
- Stamp duty holiday and “race for space”
- Peak real values achieved in 2021
- Historically low interest rates
2022-2024: Inflation and Rate Hikes
- High inflation eroding real values
- Interest rate increases affecting affordability
- Real price correction without dramatic nominal price falls
Regional Variations
UK housing market trends continue to vary significantly by region:
- London has experienced larger real-terms price corrections
- North of England and Scotland have seen more stable real values
- The “North-South divide” in housing costs has narrowed somewhat
Is Housing Better Value Now?
The data presents a nuanced picture:
- Compared to 2022: Yes, homes are better value with an 8.6% real-terms price reduction
- Compared to 2014: No, real prices are still 20% higher
- Compared to 2004: Slightly worse value, with real prices 6.1% higher
However, the mortgage affordability picture is considerably worse than in 2014 or even 2004, with monthly payments now consuming 52.5% of average income compared to 33.8% in 2014.
Conclusion
The evidence supports that UK homes have indeed become more affordable in real terms since 2022, though not to the extent that some commentators have suggested. When examined across a 20-year timeframe, today’s market represents worse value than the mid-2010s (2014) but has seen meaningful correction from the 2021-2022 peak.
Rather than being the “best value in a decade” as some have claimed, the data suggests a more accurate characterization would be “improved value since 2022, but still less affordable than 10 years ago when considering both prices and mortgage costs.”
Potential buyers might benefit from recognizing that a significant correction in real terms has already occurred from recent peaks, rather than waiting for a dramatic crash that may never materialize. However, this must be balanced against higher borrowing costs, which have effectively negated much of the benefit from the recent real price correction.
Sources
- Office for National Statistics (ONS) – UK House Price Index (2004-2024)
- Nationwide Building Society – House Price Index (Long-term data series)
- Halifax – House Price Index (Historical data)
- Bank of England – Inflation and Interest Rate Data (20-year series)
- Royal Institution of Chartered Surveyors (RICS) – UK Residential Market Surveys
- Resolution Foundation – Housing Affordability Reports
- Office for Budget Responsibility (OBR) – Economic and Fiscal Outlook
- Institute for Fiscal Studies (IFS) – Housing Market Analysis
Note: Data analysis covers the period through October 2024.
Your home may be repossessed if you do not keep up repayments on your mortgage. The value of investments can go down as well as up. Past performance is not a reliable indicator of future results.