The U.K. property market may be on the verge of a major downturn with some market watchers warning of a collapse in prices of up to 30%.
The latest RICS housing survey shows that new homebuyer inquiries plummeted in October to their lowest level since the financial crash.
The MSCI UK Quarterly Property Index, which tracks retail, office, industrial and residential property, fell 4.3% in the three months to September.
Property transactions in September were down 32% from the previous year's peak, marking a reprieve from the two-year market frenzy.
The downturn could be more severe than first thought as the Bank of England raises rates to counter the mini-budget.
Although a house price correction is widely expected ... it appears to be unfolding faster than anticipated.
Although a house price correction is widely expected as part of the ongoing recession, it appears to be unfolding faster than anticipated.
The investment bank expects U.K. property prices to decline by 10% by the second quarter of 2020. Some of the lenders are not as optimistic.
In its worst-case scenario, Nationwide said that house prices could collapse by up to 30%. According to estimates from banks, the drop-offs of 18% to 22% are the worst.
Indeed, prices have already begun falling in some places, according to property search site Rightmove, which said Monday that sellers cut prices by 1.1% in October.
There is more than one U.K. The global housing market has been affected by rising interest rates, inflation and the economic shock from Russia's war in Ukraine.
Property prices in Australia, Canada, the Netherlands and New Zealand are at risk of falling up to 20%, according to a recent analysis by Oxford Economics.
Oxford Economics' lead economist wrote last month that the housing market outlook was the most worrying since 2008.
Housing surveyors have reported the largest fall in new buyer inquiries in October since the financial crisis, excluding the period during the Covid-19 lockdowns.The U.K. is at higher risk of mortgage delinquencies due to its unique economic landscape. The sensitivity of default rates to downturns and the shorter duration of U.K. mortgages relative to euro zone and U.S. peers are factors at play.
There is a higher risk of a rise in mortgage delinquencies in the U.K. according to an economist at the bank.
The U.K. is already in a recession because of rising unemployment risks, according to Goldman.
The latest GDP figures show that the U.K. economy contracted in the last three months of the year. The U.K. is currently in a technical recession.
The U.K. is facing its longest recession since records began a century ago, according to the Bank of England.
If unemployment were to rise sharply, the dangers to housing markets would be amplified considerably.
Unemployment is expected to double to 6.5% during the two-year slump, affecting around 500,000 jobs.
Oxford Economics warned that a spike in unemployment could lead to a wave of forced sales and foreclosures. For every one percentage point increase in the U.K. unemployment rate, mortgage delinquencies tend to go up.
The dangers to housing markets would increase greatly if unemployment rose sharply.
Much of the outlook will depend on the government's upcoming fiscal statement Thursday, when Finance Minister Jeremy Hunt is expected to unveil £60 billion of tax hikes and spending cuts.
Hunt could delay the savings until after the next election in order to protect the economy during the height of the recession, according to some strategists. Hunt warned of "eye-watering" decisions to come.
The Bank of England insists that it will keep raising rates even at a lower peak.
Even with little let-up expected for the housing market, economists say the risks of a shock are minimal.
The banking sector has limited exposure to risky mortgages due to greater regulation. The majority of housing debt sits with households with reasonable savings buffer.
There is limited risk that the housing market correction will turn into a financial crisis.
All Rights Reserved © 2024
