IT was hardly a surprise to hear builder Barratt Developments declare this week that there had been a “marked slowdown” in the UK housing market.

Barratt flagged the effect of “rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity” through the final quarter of last year.

Its net number of private reservations of houses per week in the six months to December was 155, down from 259 in the same period of the prior financial year.

Barratt, which highlighted “uncertainty” ahead, is reining in its acquisition of land and has paused recruitment of new staff.

The housing market, of course, proved immune to the immediate economic fall-out from the pandemic, with prices continuing to surge.

However, UK base rates have been hiked by the Bank of England from 0.1 per cent in December 2021 to 3.5% – so we are now in a very different world in terms of borrowing costs.

And it is a world we have not been in since the days before the global financial crisis got going in earnest back in autumn 2008.

Few would have contemplated, as we emerged from the financial crisis, that UK base rates would remain at rock-bottom levels for so many years.

The housing market side-effects of these unprecedented, ultra-low interest rates – which seemed sadly necessary as an economy hampered for a while by banks’ lack of capacity to lend continued to struggle in the years ahead and then the coronavirus pandemic struck – were highly undesirable.

House prices rocketed, forcing people to have to take on ever-bigger mortgages and pricing many out of the market.

It takes only basic arithmetic to work out just how much more difficult it has become for people on normal income levels to buy houses, in terms of rocketing price-to-pay multiples.

There are obviously major issues here for the whole debate over intergenerational fairness. While the surge in house prices will have had a negative effect on homeowners and would-be buyers in various age groups, there is little doubt that young people have been disproportionately affected.

Heady house prices are among the major worrying imbalances in the UK economy, with growth in incomes having trailed the surge in property values dramatically.

And they are not healthy from a societal perspective either.

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The situation looks to have been exacerbated by a frenzy of buying, and building, for rent. Particularly notable is the huge influx of private equity funds into the housing market.

It seems these days that, at least in cities such as Glasgow and Edinburgh, renting a home is just about as cumbersome a process as buying one in the old days, as agents seek huge amounts of personal financial data and, in many cases, guarantors.

Some relief has been provided for existing tenants amid the current cost-of-living crisis by the Scottish Government’s temporary freeze on rents, although Glasgow Chamber of Commerce chief executive Stuart Patrick recently highlighted the adverse reaction to this cap from the property sector.

The big picture is that the housing market in the UK as a whole sadly looks most dysfunctional, and has become increasingly so in the last quarter-century. House prices have, over an even longer period, had way too much of an influence on consumer spending and sentiment and thus on the overall economy. The UK is not alone in this regard, with the situation similar in the likes of Ireland and the US. In mainland Europe, much of which has a soundly functioning long-term rental market, house prices seem to be far less of an obsession and do not play such a big part in the overall economic picture.

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Of course, Scotland is not affected as badly by the surge in house prices in recent decades as some other parts of the UK, notably London and south-east England.

However, that does not mean there are not huge issues for would-be homebuyers in Scotland.

Official data published last month showed the average house price in Scotland had jumped by 8.5% over the year to October 2022, to £194,874.

The “earnings in Scotland: 2021” report, published in March last year by the Scottish Parliament, showed the median pay for all employees was £26,007, the third-highest among 12 UK nations and regions, behind only London and south-east England. The average house price in October 2022 is around 7.5 times this figure.

The official house price index for Scotland was 144.4 in October 2022. With the index at 100 in January 2015, this signals a jump of 44.4% in the average house price between then and October last year.

It would surely be difficult to argue that it would not be better if house prices across the UK fell back in a meaningful way or at least cooled for a long period.

Barratt said its total average selling price in the six months to December was up by around 14.6% on the same period of the prior financial year at about £330,000, but this was partly the result of a greater proportion of its house sales being in London.

Building society Nationwide is projecting an overall 5% fall in UK house prices this year, with the Office for Budget Responsibility forecasting a 9% drop between the fourth quarter of 2022 and third quarter of 2024.

A return of house prices to the type of multiples of earnings that would allow young people and other first-time buyers to get a foot on the ladder in the way they could in the 1980s or 1990s would clearly be a good thing from an economic and societal perspective.

The big problem is, of course, how you would get to such a position. And there is a major question over whether this could be achieved in any case given the arrival of institutional investors at scale in the housing market and with inherited wealth passing down the generations, not to mention supply and demand issues.

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Clearly, it would be best if a meaningful cooling of the UK housing market could be achieved in an orderly way. No one wants to return to the negative equity crisis that was seen during the Thatcher administration, especially given the scale of the mortgages people have had to take on as house prices have soared. And it is important that supply of housing is not disrupted severely by a softening of the market backdrop, given that this would, other things being equal, have an upward effect on prices.

A protracted period of house prices which are flat in nominal terms might give incomes some chance to catch up. However, this is not going to provide any short-term solutions to the UK housing market dysfunction.

Rock-bottom interest rates have undoubtedly affected the housing market in a way that is most undesirable from an economic and societal perspective. Far less obvious is how the problems might be unwound, and whether this is even possible.