Will there be a house price crash?

ended 09. May 2022

With interest rates rising, inflation soaring and the economy creaking, there's growing talk of a house price crash in the UK. We asked brokers and estate agents whether they think a crash is on the cards. Their views are below.

14 responses from the Newspage community

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"Having posted double-digit growth during a global pandemic, property prices are up there with cockroaches in their ability to survive an apocalypse. Despite rising interest rates, the cost of living crisis and a potential recession, it still seems foolish to bet against the resilience of UK property prices."
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"Though we will undoubtedly see the rate of house price growth ease, perhaps substantially in some areas, it's very unlikely that there will be anything like a house price crash and the doom-mongers will be disappointed again. Despite all the issues that the UK is facing, demand for housing is likely to continue to outstrip exceptionally low housing supply. In the meantime, interest rates, although rising, are still historically low with lenders having a good supply of funds to lend. House price changes will be very regional in nature, but on the whole any reductions will be minimal and we are more likely to be on a plateau rather than the edge of a precipice."
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"In the short term, I expect the property market to continue its upward trend. However, high inflation pushing interest rates up, as we have already seen with last week's base rate rise to 1%, will slow the housing market down as we move into 2023. Also, average mortgage interest rates are predicted to rise to 3.2% in 2023, which is double the average 1.6% rate recorded at the end of 2021. And clearly, the rising cost of living pressure on the economy cannot be ignored. With interest rates rising and inflation squeezing household finances, it is likely that the rate of house price growth will start to slow towards the end of 2022 and into 2023."
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Ross Boyd
CEO at Dashly.com
"The crazy house price growth we saw in April may well have been the property market's last fandango. With inflation tipped to hit 10% and interest rates rising, this rate of price growth simply cannot continue. With bills soaring across the board, people are increasingly battening down the hatches and that will hit bricks and mortar. The lack of stock and our inability to build enough new homes will prevent an outright house price crash but prices are almost certainly going to cool in the months ahead."
"Let's remember that interest rates have only gone up from historic lows, to just above historic lows. The base rate increasing to a whopping 1% is hardly taking the edge off demand. What people forget is a major factor in house prices is the availability of funding. In 2007, the banks ran out of money and stopped wanting to lend. Today they've got loads of cash and can't lend it out fast enough. Just look how much of the stuff has been printed in the last 2 years. They've slowly been increasing what people can borrow, to the point where several lenders will lend 5 and a half times annual income to people earning under £40 thousand a year. Send people out with the ability to borrow a lot more money, they'll bid up house prices. Rein in what people can borrow and prices will soon fall."
"While there may be a short term adjustment to some of the significant price increases we have seen in some areas over the last couple of years - mainly fuelled by lockdown cabin fever and a hiatus on stamp duty land tax - I can't see a full-on house price crash becoming a reality. However, it is very true to say that household budgets are straining and borrowing has become less affordable for many, so something has to be done to increase the supply of good quality, affordable housing. Only this will ensure a stable housing market for the future. Remind me again, why aren't more councils finding innovative ways to fund the building of new homes?"
"An increasing population, people living longer and a chronic shortage of housing stock are the biggest factor pushing prices ever higher. As mortgage rates rise, inflation soars and wages stagnate, there's every chance of a price correction but we're unlikely to see a repeat of 2008 as the due diligence undertaken on new mortgage applications is far more robust than it ever has been before."
"The basic economics of any market are supply and demand. In the UK housing market, there is a chronic undersupply of housing and therefore demand is not, and cannot, be met, which is why we see house price growth nearly constantly. However, there is another part to the equation: funding. Houses are big ticket items and people cannot buy them without borrowing money, so the thing that causes house prices to fall in the UK is not a lack of demand, or an oversupply of property, but when funding is withdrawn. This is what we saw during the credit crunch. As lenders withdrew loans for those with small deposits, i.e. First Time Buyers, this strangled the housing market and therefore prices fell. As soon as the Government stepped in with things like Help-To-Buy, low-cost funding and guarantees for lenders, we saw a rapid return to house price growth as mortgages became available to the masses again. So, will we see a house price crash? It all depends on the mortgage lenders and their confidence to lend to us all."
"You've more chance of counting the pebbles on Brighton beach than predicting UK property prices, which have defied most forecasting for more than a decade. All the ingredients are on the table for a readjustment and that could be up to a 30% decrease in current values. Buy-to-let and new builds came to the rescue post Credit Crunch and we didn't see the drop that was feared post-Brexit or during the height of the pandemic and some think that the steps taken to buoy the market during the latter, actually fuelled it. If you believe in the 18 year property cycle the next event will be 2026 so perhaps I am a little early."
"Crash? No. The severe lack of property being built is keeping the market competitive, and a lack of stock is keeping prices high. I have had a client call me today who has just sold his property in Sheffield at £220k when they had it listed for £190,000. Until we get some real movement in new and affordable homes, prices will remain high making it very difficult for many to afford to move."
"Interest rates have only risen from the all-time low and are still super low in the grand scheme of things but price growth will almost certainly slow down compared to the past 18 months. The biggest issues facing the housing market are the lack of stock and lack of incentives for people to sell properties to allow mobility within the housing market. Until more affordable housing is built, demand will continuously outstrip supply in the market. Yes, there will be a minor correction in pricing but I don't expect a 2008 scenario anytime soon while employment rates are still high and demand for housing still strong."
"No. As we are so obsessed with home ownership in the UK, if prices were to crash, they would quickly be pushed up again by first-time buyers and landlords snapping up the cheap properties. Whilst we are likely to see a decrease or slowdown in the rate of price growth, a crash is not on the cards."
"House prices are going to keep increasing. Higher interest rates are putting many people off from upsizing and affecting stock levels. So when a decent property comes on the market in a good area, sellers are getting several more more offers from keen buyers. This demand is pushing prices up. It is definitely a seller's market at the moment. There will not be a crash. The market has showed resilience during the pandemic and will continue to do so. Banks have been stress testing all borrowers at 5.5% - 6% for many years so current interest rates are not a cause for concern. If buyers can afford to buy a property, they will, it’s as simple as that."
In a word, No. We live in a country where there are less houses than people willing to buy or rent. Throw in that we're even worse at building enough new houses yo keep up with new demand let alone the backlog, and this means house prices can only continue to go in one direction in the long term. We won't see a crash but we may see the rate of growth slow to sensible levels and we also may also see energy efficient homes be more in demand than older drafty houses as people count the costs to keep warm and legislation changes hit on the road to our net zero commitments.