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Alarm Bells Ring for UK Housing as Signs Point to Falling Prices

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The UK housing market is currently experiencing a rollercoaster of events and trends that have left money managers concerned. In this blog post, we’ll dive into the key factors why the alarm bells ring for UK housing as signs point to falling prices.


The Current Landscape

Money managers have been on high alert as shares in some homebuilders have plummeted by more than 25% this year. This decline is reminiscent of the pre-financial crisis sell off in late 2006 and early 2007. Concerns are mounting, and experts are offering insights into the challenges ahead.


Rising Uncertainty

Experts are painting a bleak picture, with outlooks for both interest rates and real incomes described as the worst since 1960. Additionally, consumer confidence indicators are ringing alarm bells. These factors are putting immense pressure on both the financial sector and real house prices.


Impact on Housing Inflation

The mounting pressures on the market may signal the end of housing inflation. Following the financial crisis, banks became more generous with lending due to low-interest rates. Low-deposit loan programs and temporary tax cuts further fuelled the market, leading to record-high home prices in England.


Challenges on the Horizon

In the coming year, approximately 1.8 million people will need to refinance their homes due to surging interest rates, plunging real wages, and increasing recession risks. This means that a previously accessible source of credit for some buyers may disappear.


End of Help to Buy

The popular Help to Buy program, which allowed home purchases with just a 5% deposit and government guarantees on borrowings, is set to end. This will have a negative impact, particularly on first-time buyers in London, exacerbating housing market inequality.


Developer Response

Developers in London are adjusting their strategies, focusing less on constructing affordable homes due to the conclusion of Help to Buy. This shift is reflected in the ratio of housing starts to new home sales, which is now at its lowest since 2009.


Market Impact

The UK’s homebuilders have missed out on recent stock market rallies, partly due to the barrage of negative news. Energy prices are also set to rise significantly, putting additional financial pressure on households.


Impact on Renters

Renters, aiming to save for a down payment on their first home, may find it harder to do so. Those who stretched their finances to afford record-high prices could face financial difficulties.


Price Outlook

According to Capital Economics, the worsening economic outlook suggests that UK house prices are likely to fall over the next two years. Rising mortgage rates are expected to discourage homeowners from moving, contributing to the lowest housing activity in a decade.


Rate Warning

Consumers are facing an increase in interest rates, with the Bank of England expected to raise its benchmark by 250 basis points by May. Unlike the US, UK homeowners tend to fix their mortgage deals for shorter durations, making them more vulnerable to rising rates.


Inflation Fight

The Bank of England’s focus on combating inflation may have implications for borrowing costs. However, if the economy takes a downturn, the central bank may need to reconsider its approach.


Looking Ahead

Even if home prices do decline, the property market has experienced a significant boom since the pandemic, driven by a stamp duty sales-tax cut. A near-20% decline in prices would only take values back to late 2019 levels, indicating the resilience of the market.


Historical Parallels

The exodus of people leaving London, similar to trends seen in 2007, raises intriguing parallels. Back then, soaring living costs and a desire for more space led many to leave the capital, and a crash followed shortly after. The question is whether history is poised to repeat itself.



The UK property market is at a critical juncture, with multiple factors influencing its trajectory. As we navigate these challenges and uncertainties, staying informed and agile is essential for both homeowners and investors. Subscribe for updates and in-depth analyses as the market continues to evolve.

What Bloomberg Economics Says…

There are reasons for cautious optimism that the worst can still be avoided, even though risk indicators are flashing red. The balance sheets of homeowners are healthier, the borrowing standards are tighter, and fixed-rate mortgages are more prevalent. A tight labour market will prevent forced sales. Much will depend on how much interest rates rise and how much a recession will hurt the labour market. The larger the hit, the harder it will be to avoid a hard landing.

Niraj Shah is an economist.

The assistance was given by the following: ZOE HEIWESS, OLIVIA Konotey-Ahulu, and DAVID GAMBLE.

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