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Will there be a house price crash?

Will there be a house price crash? Will there be a house price crash?

THEY say that what goes up, must come down – but is it true when it comes to house prices?

Property prices have soared in recent years, but there are fears that the property market is due a dip, which could devastate household finances.

Could property prices be set to fall?[/caption]

According to the Office for National Statistics, the average house price rockets 10.9% over the past year to £277,000.

There are a number of factors driving that growth. A stamp duty holiday during Covid spurred a number of people to move house.

And lack of housing supply means buyers are having to fight each other to get a property.

Agents are reporting buyers putting offers in for tens of thousands more than the asking price as they clamour to get a foot on the housing ladder.

And while sceptics point to rising interest rates, which could push up mortgage repayments, others argue that rates are still very low compared to history.

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The last time property prices crashed was in the global financial crisis.

UK house prices reached an average of £190,032 in September 2007 and had plummeted to £154,417 by February 2009 – a fall of more than 18%.

They did not regain that peak until August 2014.

Jonathan Burridge, founding adviser at We Are Money, said that “all the ingredients are on the table” for a price correction at the moment – and that could mean house prices plunge as much as 30%.

He said: “We didn’t see the drop in prices that was feared post-Brexit or during the height of the pandemic. Some people think that the steps taken to buoy the market through Covid have actually fuelled it.”

Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, says what happens next depends on mortgage lenders.

“This is what we saw in the credit crunch: as lenders withdrew loans for those with small deposits, such as first-time buyers, this strangled the housing market and prices fell.”

But could this time be different?

But Dean Esnard, director at Magni Finance, said the property market had already stayed resilient through crises such as the pandemic, so should continue to do so.

Affordability checks have also become more stringent in recent years, meaning homeowners should not be overstretched.

Lenders typically “stress test” your finances to check you could afford mortgage repayments if interest rates hit 5 or 6% before agreeing your loan, and this is considerably higher than today’s rates.

Imran Hussanie, director at Harmony Financial Services, points out that while interest rates are increasing, they are still at historical lows.

He adds: “The biggest issues facing the housing market are the lack of stock and lack of incentives for people to sell properties.

“Until more affordable housing is built, demand will continuously outstrip supply.”


Rhys Schofield, managing director at Peak Mortgages and Protection, agreed the UK’s chronic housing shortage will put a floor under prices.

“We live a country where there are fewer houses than people willing to buy or rent.

“We’re even worse at building enough houses to keep up with new demand, let alone tackle the backlog. And this means house prices can only continue to go in one direction over the long-term.”

There could, however, be a shift in the types of homes in greatest demand.

Schofield said: “We may see energy efficient homes become more in demand than older, drafty properties as people count the costs to keep warm and legislation changes come into effect.”

Chartered financial planner Joshua Gerstler added: “We are obsessed with homeownership in the UK. Even if prices were to crash, they would quickly be pushed up again by first-time buyers and landlords snapping up cheap properties.

“While we are likely to see a slowdown in the rate of price growth, a crash is not on the cards.”

Still, Matthew Fleming-Duffy, director at Cherry Mortgage & Finance, said the current situation is a reminder to the Government to do more to increase housing supply.

He said: “Household budgets are straining and borrowing has become less affordable, so something has to be done to increase the supply of good quality, afford housing.”

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Our mortgage payment calculator can help you work out how much you can afford to borrow to buy a home.

And our My First Home series reveals each week how first-time buyers have got a foot on the ladder – like the two best friends who teamed up to buy a £505,000 first home.

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