Is there any hope of house prices dropping in the near future, or is this basically it, rising 10 per cent-plus a year?
A despondent would-be first-time buyer posted their predicament on a Reddit forum recently: “Partner and I have a combined income of £53,000 and deposit of £35,000, but no houses in a ten-mile radius are under £300,000, it seems hopeless to get a house for our small family of three.”
If they had hoped for comfort, they would have been sorely disappointed by the 100 or more replies. Almost all of the amateur commentators in the thread concluded that house prices wouldn’t fall any time soon. As one of them told the desperate house-hunter: “House prices fall when most people are unwilling (fearful) or unable to purchase and the chances are that will include you.”
But as interest rates creep up and inflation rises — the next government update is this week — the threat of a UK housing market slowdown is growing. So is there a chance that the great correction is coming?
“If house prices fell by a third it would be one of the biggest property market crashes”
Neal Hudson, an independent property analyst with a cautious track record, wrote in his blog last week: “It’s quite possible that a sudden rise in mortgage rates could lead to a house price correction — a rise to 3.6 per cent (from 1.6 per cent currently) would lead to prices being 30 per cent overvalued.”
But before would-be buyers start rubbing their hands in glee (while homeowners despair), Dan Wilson Craw, deputy director of Generation Rent, a campaign group, cautions: “It’s unlikely we would get a crash without wider economic turmoil and incomes falling, which would mean those people keen on buying losing their savings if invested on the stock market and possibly losing their jobs.
“I don’t think negative equity is so much of an issue as it was in 2008 because we have had a decade of tight mortgage affordability regulations, so generally people have more equity in the property and are less likely to have trouble with repayments.”
“We are unlikely to see a massive spike in repossessions and forced sellers”
In the global financial crisis of 2008-2009 house prices fell by 20 per cent, and more than a million UK homeowners were plunged into negative equity — when the value of their home dropped below the value of the loan they held on it.
First-time buyers who bought on 95 per cent loan-to-value mortgages might not be comforted by the fact they will be able to afford to pay off loans on homes now worth less than they borrowed if prices fall dramatically.
However, Wilson Craw is correct. In December 2007 the average loan-to-value of a first-time buyer mortgage was 82 per cent; in December 2021 it was 76 per cent. What is more, repayments accounted for 24 per cent of income in 2007 but were just 17 per cent in 2021, according to data from UK Finance.
Today’s first-time buyers are more financially secure than they were in the last recession. We are unlikely to see a massive spike in repossessions and forced sellers.
“No-one is expecting a house price crash on the scale of 1990s or 2008. A dip or flatlining is more likely”
Karl Thompson, an economist at the Centre for Economic and Business Research, says: “We expect a fall in prices amounting to 2.9 per cent across 2023, following growth of 5.4 per cent this year. The annual dip is set to reach its most severe at 5.3 per cent in the second quarter of 2023. While significant by recent standards, this is clearly not of the proportions seen in 2008-2009, the worst of which saw a sharp 15.5 per cent annual contraction.”
Wishart forecasts growth of 8 per cent this year followed by a 3 per cent dip in 2023 and 2 per cent in 2024.