Are we set for another housing market crash?

By : Nick Marr

A crystal ball has many uses.

The UK housing market is in a state of flux. With the Bank of England promising interest rate rises within the near future, and dire predictions that the London housing market has peaked – no one really knows what’s going to happen to the housing market in the future. The other difficulty with answering the question is that the market differs from region to region.

The Overseas Market

Many Brits have taken advantage of the high value of sterling compared with the Euro and bought property overseas. The fact that they can carry out all their legal transactions via the London based firm of Vanner Perez Notaries, circumvents the problems of hiring an overseas firm of legal experts. Large pension pots, thanks to changes in pension legislation, mean that many older Brits have the cash to spend on houses overseas. This might act as a propellant to drive European prices upwards.

Difficult to predict

A recent article on the This is Money website suggests that prices in London are starting to decline, and other parts of the UK, according to both Nationwide and Halifax building societies are showing a 0.3 % dip. Mortgage approvals are still sluggish, and those looking to invest in the ‘Buy to Let’ market have been affected by the July Budget changes. Talking about London house prices, Lucian Cook from Savills suggested: ‘On affordability grounds alone there is limited capacity for house price growth in the mortgaged part of the London market over the next five years. A period of low price growth is needed to rebalance the market.’

According to the BBC and other media outlets, oligarchs, criminals and money launderers dominate the London market. This might affect the prices of upmarket houses, but for those seeking mortgage approvals, oligarchs’ acquisitions barely seem relevant.

Crisis – well maybe

If the interest rate rises come into effect at the same time that inflation starts to grow, then the housing market might show signs of strain. A recent talk with a Norfolk mortgage broker suggested that many are trying to buy now in the hope that they can afford their mortgages despite the projected interest rate hike. He also added ‘everything is changing, fewer new houses, and in Norfolk prices are rising, so those selling at the moment are doing well, but as for the future, no one really has a clue – it’s a new territory.’

Alternatively, The Guardian suggests that the market will remain buoyant for some time to come. Though the newspaper does warn against ‘overblown presumptions.’ One of the problems is that every expert would appear to hold a different opinion to that of their colleagues.

Is negative equity due to return?

Many of those who received their existing mortgages under the old self-certification process, will find it difficult to remortgage or move on. The lending rules have tightened up to such an extent that a lot of families are staying put and refurbishing their existing homes. There does appear to be something of a gridlock in the current housing market. As for a crash, time to invest in a crystal ball.