Is the UK heading for its ‘biggest ever’ house price crash?

Homeowners are “on course for a brutal reckoning”, say experts, as the UK mortgage crisis risks triggering the largest house price crash on record.

As the era of low interest rates comes to an end, millions of borrowers are facing mortgage rate rises that for many will be “simply unaffordable”, said The Telegraph.

The housing market is in for a “terrible reckoning”, argued the paper, with prices on a “knife edge” ahead of a “prolonged downturn”. But not everyone agrees.

What did the papers say?

Some forecasters are predicting that “the impending mortgage catastrophe could trigger a crash the likes of which have not been seen since records began”, said The Telegraph. Years of “cheap money” has “put homeowners on course for a brutal reckoning”.

The “sharp increase” in the cost of mortgage borrowing has put house prices at risk of crashing by as much as 35.5% from 2023 to 2027, according to a “worst case scenario” forecast published by Lloyds in May.

Speaking to This Is Money, Charlie Lamdin, founder of property website BestAgent, made a similar forecast. He is “expecting prices to fall 35 per cent in nominal terms over approximately three years, from their peak in 2022, to 2025”.

But the “debate surrounding the direction of house prices is as fierce and divided as ever”, said the site.

On one side, analysts say higher rates combined with inflation will “decimate people’s purchasing power”, causing “double-digit percentage falls”.

“On the other side there are those who say that it is rare for house prices to fall substantially, especially in the UK where home ownership is an important goal for many.”

The latest data from Rightmove shows a “marginal fallback after five months of growth”, said the Financial Times, with new sellers listing their homes for £372,812 on average in the four weeks to 10 June, £82 less than in May. Meanwhile, the average two-year fixed mortgage rate has moved towards 6%.

The figures are still “surprisingly robust”, said Lucian Cook, head of UK residential research at Savills, predicting “a more W-shaped recovery in the housing market”.

And rising interest rates might already have inflicted more of a dent in prices than first thought, said one expert. “With average prices failing to keep up with general inflation”, Jonathan Rolande, from the National Association of Property Buyers, told Landlord Today, “it can be argued that property has already lost a substantial amount of value.”

Capital Economics said that as house prices have already fallen by 4%, according to lender Nationwide, inflation means that this represents a nose-dive of 13%, The Telegraph reported. 

What next? 

All eyes are on the next UK inflation report and Bank of England rates decision, both due this week. Official data on Wednesday is expected to show inflation has fallen to its lowest level in 14 months but interest rates are set to climb further, with the Bank of England expected to raise its base rate to 4.75% on Thursday.

Rishi Sunak has refused to offer extra help to homeowners struggling with mortgage payments, but promised to stick to his plan to halve inflation.

“It is likely to feel very frenetic for those taking out a mortgage right now,” said Tim Bannister, director at Rightmove.

The property website expects asking prices to “edge down during the second half of the year, which is the normal seasonal pattern”, said the i news site, with “current trends” suggesting that Rightmove’s original forecast of a 2% annual drop in asking prices at the end of 2023 is “still valid”.

A poll of 23 market specialists in the second half of May found that average house prices were expected to fall a “modest” 3% across 2023, said Reuters, “deeper than the 2.4% drop predicted in a February poll but nowhere near the crash some were expecting”.

“The majority of pundits and doomsters are being proved wrong – it is not an edge of the cliff moment,” Tony Williams, from consultancy Building Value, told the news agency. “Yes, prices will fall this year but by single digits.”

But Rob Dix, co-founder of Property Hub, told This Is Money that he foresees a crash in the long term. “I expect that at some point we’ll see affordability checks weakened or sidestepped, which will unleash the boom in lending that will bring about the eventual crash.”


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