The cost of housing remains a major issue in the UK. For those who have already got on the property ladder, property, it is an apparently endless source of wealth – while for those who have not, it is a matter of frustration and misery.
But is a house price correction going to turn the winners into losers?
Are there signs of a price crash?
Some commentators have recently started suggesting the housing market looks like it is heading for a correction. A few even go so far to suggest this could be anywhere between 20% and 40%, which sounds more like a crash than a correction.
Prices have already fallen in London. According the Office of National Statistics, prices in the capital have been falling since the EU referendum in June 2016. Anecdotal evidence suggests that the overseas investors which were overheating the market are drying up, and that in top locations falls are dramatic. Kensington & Chelsea remains the most expensive borough, with an average price of £1,805,000. But prices have fallen by 12.9% in the last year — more than £200,000. Prices in Camden fell 10.8%.
Across the rest of the country, the position seems to be one of steady house price growth, leading to the conclusion that it is only Londoners who are suffering. However, looking at the prices actually being paid, rather than asked might suggest otherwise. During March this year, 86 % of properties sold for less than the asking price — the highest level since records began in 2013, according to the National Association of Estate Agents.
There is an increase in the numbers of properties valued by surveyors at under the vendors asking price. It is this that is prompting some observers to believe that the market is turning and that house prices may be due to fall.
What is behind the slowdown?
House prices might simply be too high to be sustainable. Worries about Britain’s EU exit may be holding buyers back from moving house, meaning the number of houses being bought and sold is falling. At the same time, worries about interest rate rises may be discouraging buyers – while Bank of England regulations which restrict the availability of larger mortgages could be limiting price growth. Together, these factors mean it is taking longer to sell a high priced home – which means that the only way to sell is to drop the price.
What happens now?
There is a whole generation priced out of the housing market who believe a crash would return prices to sanity and put a home within their reach. Those who have large mortgages believe it would be a financial disaster both for them and for the economy as a whole.
In fact, a crash is probably unlikely. The UK is a densely populated island with near full employment, where housebuilding has lagged behind demand, and where money can be borrowed at historically low rates. There will still be plenty of demand for homes.
Some correction might be possible. People may find that it takes longer to sell a home, and will either take it off the market, or accept a lower price. Areas like London where prices have become unsustainable will have to accept falls, but the rest of the country can expect subdued growth, rather than sudden losses.
If you are looking at the housing market as a buyer or seller, it could be worth discussing the outlook with an expert. At Continuum we would be happy to help.
Your home may be repossessed if you do not keep up repayments on your mortgage.
citywire.co.uk – Property price correction could hurt boomers – 31st July 2017
theguardian.com – Some might pray for a house price crash, but be careful what you wish for – 29th August 2017
thisismoney.co.uk – Are mortgage lenders worried about the property market? Experts warn growing ‘down valuations’ may be a red flag for house prices – 23rd July 2018
theguardian.com – House prices tumble in London against rises across rest of UK – 23rd May 2018
uk.businessinsider.com – 3 reasons why London house prices are falling – 15th Feb 2018