The UK’s housing stock is now worth £6.17 trillion, up £385 billion from last year. With relatively low numbers of new homes being built, this increase is primarily due to higher prices being paid for existing homes.

Increased competition in the mortgage lending market, stronger economic growth, demand from cash-only buyers, and a relative lack of appropriate homes for sale in the right locations, have all contributed to the average house price rising 4.5% in 2015.

However, much stronger house price growth in the more expensive markets of London and the south of England helped increase the total value of residential property by 6.7%.

Stronger growth in more expensive markets is a continuation of the geographic pattern seen over the last six years. Since 2009, the value of the UK’s housing stock has risen by £1.3 trillion, a 28% increase.

The majority of the value boost has been in London (51% of the £1.3 trillion increase) and the south of England (42% of the increase). The value of London’s residential property is now £1.6 trillion, more than the value of all the housing in Scotland, Wales, Northern Ireland and the North of England combined.

Meanwhile, a stronger price performance in the south of England has helped push up the value of its housing by £560 billion since 2009 and it is now worth £2.4 trillion.

Moving Market

This pattern of growth in the south of England reflects the housing market moving into the next stage of the cycle as the economic recovery spreads.

Further evidence of the shifting cycle is provided by the results for central London’s two wealthiest boroughs, Westminster and Kensington & Chelsea. Together, they have a higher combined value than the whole of Wales but only 15% of the homes.

In recent years, these two boroughs have tended to be at the top of the table for growth, but 2015 saw them fall down the rankings as the central London market slowed.

Meanwhile, Northern Ireland continued to show strong growth following its much deeper correction, with a percentage growth similar to that in London. However, in value terms, it only increased by £6.6 billion over the year. London’s housing stock value grew by an equivalent amount every 19 days.

Widening Gap

It is not just the geographic distribution of housing wealth that is unevenly distributed, there are also important shifts in the distribution by tenure. Over £2 trillion worth of housing is now owned typically by older households with no mortgage.

This presents a substantial opportunity for new housing catering specifically to older people. But, without the ability to sell or borrow against it, housing equity is just a number on a page.

The decline of mortgaged homeownership presents a challenge to unlocking that equity and means that the total value of homes owned outright has just overtaken that of those owned with a mortgage. The decline in mortgaged homeownership means that this group own property worth some £2 trillion, of which just over half is equity.

Meanwhile, the growth of the private rented sector continues. The total value of the sector hit £1 trillion in 2013 and is now estimated to be worth nearly £1.3 trillion. With just over £200 billion of buy-to-let mortgage debt outstanding, that suggests landlords’ net housing wealth has just overtaken the £1 trillion of mortgaged homeowners. However, it is likely that a sizeable number of owner-occupier mortgages are secured against property that is rented out.

With no definitive data available, we estimate it could add another £130 billion of debt to landlords’ balance sheets, while removing it from mortgaged homeowners.

Even adding in that extra debt, the overall average loan-to-value ratio in the private rented sector only rises from 16% to 26%. This suggests the financial risk posed by buy-to-let lending may be less than suggested by the current political rhetoric.

^{▲ Bristol saw the biggest increase in value outside of London}

The Implications

Rather than a financial risk, buy-to-let is perhaps a greater threat to the Government’s target of increasing homeownership. However, despite substantial Government subsidy, record low interest rates and record high lending multiples, the cost of buying remains a significant barrier to homeownership for many.

The Government will probably succeed in increasing the number of people becoming homeowners due to people moving out of social housing and through further homebuyer subsidies. Whether it will do so at a sufficient scale to reverse the decline in homeownership remains to be seen.

This focus on homeownership presents challenges for homebuilders. They already build market homes as fast as they can sell them. It remains to be seen whether the new policies will allow them to do so at a faster rate by reducing the cost of new homes, or just end up cannibalising existing Help to Buy sales.

The changes may also bring additional financial difficulties for developers where S106 housing and investor sales have traditionally provided important early development cash flow. Build-to-rent investors may offer some respite, but certainly not at the scale needed.

Perhaps most importantly in today’s high value housing market, even with substantially more market and submarket homes for sale, there will still be the need for homes both for sale and for rent that are affordable across the full spectrum of income and wealth.

For more UK housing market analysis, you can follow Neal Hudson on Twitter @resi_analyst