Home Buying Is The UK Housing A Market Bubble Fit To Burst?

Is The UK Housing A Market Bubble Fit To Burst?


There are experts who look at the UK housing market today and warn that it is in a bubble, very close to bursting. But there are others who say this recent boost in demand and value is here to stay and a result of natural market forces rather than unnatural stimulation.

In economic terms, a bubble occurs when an asset’s price appears to be ‘based on implausible or inconsistent views about the future’. Put another way, a bubble forms when an asset’s market value greatly exceeds its intrinsic or practical value. 

What is a bubble?

One can look at childhood crazes such as collectable stickers or playing cards. When the craze is at the centre of the zeitgeist, the value of some specific cards skyrockets. Some cards suddenly have a value of hundreds, if not thousands, of pounds, despite their intrinsic value being the same as all of the other cards. 

But then, as always happens, the childhood craze comes to an end and suddenly that special card which was valued as thousands of pounds is worth much less because there are fewer people still interested in collecting the cards. 

The craze around the cards created a bubble. Bubbles can very quickly burst and apparent values can tumble overnight. Anyone who invested heavily in the resale value of the cards during the game’s peak in popularity will suddenly find their collection to be almost worthless because they have returned to their intrinsic value.

Is housing in a bubble?

Those who believe that housing is now in a bubble and fit to burst do so because they think the unprecedented demand brought on by lockdown and the stamp duty holiday has pushed house prices above a realistic or sustainable level. When stamp duty returns and lockdowns lift to allow life to get back to normal, it is said the bubble will burst because demand will drop significantly.

However, here at Moving Home Advice, we don’t agree that housing is in a bubble. This is because we have conducted research which proves UK homebuyers are not being motivated by the stamp duty holiday. Furthermore, around 30% of homebuyers are first-timers. As such, they are largely exempt from stamp duty regardless of the holiday.

As our in-house property expert, Russell Quirk, has said in the past:

“There are some people suggesting that all of the 250,000 transactions currently in the UK property pipeline will fall-through the instant we reach midnight on 1st April. This is bonkers and wrong. Even if the stamp duty holiday does end as currently scheduled, many of those transactions will have already completed, and 30% of those which haven’t will be first-time buyers who are exempt from SDLT anyway. 

“Therefore, those who are feigning hysterics that everything in the pipeline will fall-through are being swept along by media hyperbole.”

A more realistic vision

Instead of focussing on a supposed bubble, let’s try and be more realistic about the near future of the UK housing market. 

Covid-19 has inspired many to move home because they need more space, want to escape the confines of the big city, or have had their personal values ever changed by the lockdown experience and thus need a new home which reflects this change. 

These people are buying homes based on emotional motivations. They have also benefited from the financial gains of the stamp duty holiday, but they’re not doing it because of the stamp duty holiday. 

Some buyers definitely are motivated by the holiday and yes, their numbers will dwindle when the holiday ends. But the vast majority of UK homebuyers will not be put off by the end of the holiday. 

If anything, the increased freedom and perceived safety of the coming months will likely bring more buyers and sellers to the market, people who have resisted doing so so far but now feel it’s appropriate to make the move. 

So, over the coming months, we can expect price growth to slow down, but not necessarily reverse, and we can expect demand to stay high. Neither of which are the ingredients for a bubble.

Leave a Reply