Key indicators of performance for the UK housing market suggested little, if any, change between 2010 and 2011. 

At this national level house prices fell by 2% according to the Land Registry, while already suppressed transaction levels also fell modestly, by around 5%. Gross mortgage lending remained constrained especially at high loan to value ratios. In the third quarter of 2011, lending at loan to value ratios of 90% or more was down 20% compared to the same three months a year earlier. 

The level of outstanding mortgage debt fell by less than half of one percent. On the one hand, households struggled to make inroads into paying down their housing debt. On the other, both they and banks remained cautious about extending the nation’s mortgage exposure. But headline figures do not tell the whole story. The underlying trend is of a widening gap between market leaders and market laggers (see Table 1).

Leaders and laggers

Last year we took Land Registry data and divided the market into 10 segments according to their performance in the first or second half of the last housing market cycle. This accounted for the fact that in the South East the market of, say, Brighton behaves very differently to that of, say, the Medway Towns. 

This categorisation shows that whereas roughly half the market saw price rises in 2010, the vast majority saw price falls in 2011. Only the very strongest market leaders continued to deliver growth. 

In the markets typically weakest at this stage in the cycle – the ‘laggers’ – those price falls accelerated significantly in response to the weakening economic outlook. As a result the markets that have historically lagged in the early stages of a market recovery flagged in 2011. 

This leaves a situation where prices in the ultimate market leaders – those markets that are the least constrained by the lack of mortgage debt – have on average returned to their peak of 2007, while prices in the ultimate market laggers have fallen to 24% below their 2007 peak. 

Given little sign of a change in accessibility to mortgage finance or an improvement in the economy, we expect the resulting gap to widen further still over the next five years.

Taken from
Residential Property Focus Q1 2012