Is the UK property market going to crash in 2022?
Many property investors are asking the same question and it is also being raised in some parts of the media.
Will the property market ride out the storm or will there be a property market crash in 2022? This blog post investigates.
What is a house price crash?
A house price crash is a significant fall in house prices in the market.
The last time property prices “crashed” was in the global financial crisis.
Then, UK house prices reached an average of £190,032 in September 2007 and had dropped to £154,417 by February 2009. This was a fall of more than 18%.
In this instance, property prices did not return to peak until August 2014.
What is the current health of the property market?
The UK House Price Index showed an 8.2% UK house price growth, according to the Zoopla September 2022 report.
There has not yet been any real impact on the market by external factors.
According to Zoopla, “The strong start to the year has carried momentum into the summer. As we enter the autumn selling season, demand for housing continues to soften and is much lower than this time last year.
“UK-wide demand remains 8% above the 5-year average supported by strong buyer interest in affordable markets, such as Scotland. All other regions have demand in line with the 5-year average.
“The UK government has responded with tax cuts and an energy price cap to support housing demand. Changes to stamp duty will boost some segments but the recent spike in borrowing costs are set to push mortgage rates higher.”
What will happen to the property market in Q4 2022?
According to Zoopla, “Mortgage rates are on track to reach 5% by Q4 – more than double the rates at the start of 2022.”
The Zoopla report states that if mortgage rates rise from 2% to 5%, buying will be reduced by as much as 28% (assuming buyers want to keep monthly repayments unchanged).
It states, “This will impact housing demand into 2023 for the 7 in 10 buyers using a mortgage where they: put down larger deposits; or allocate more income to mortgage costs; or adjust their budget, buying smaller property or looking to cheaper areas.”
Is a property crash in 2022 inevitable?
One report states, “UK house prices could crash in the UK by as much as 40% over the next couple of years in a hammerblow to millions of homeowners, an expert has warned. Shockwaves left financial and currency markets trembling this morning when the pound plunged to an all-time low against the US dollar. Pound sterling nosedived to just $1.0327 – below even the 1985 baseline of $1.0545 – before rallying slightly as the day progressed to close just below $1.07.”
Touchstone Education CEO, Paul Smith responds that the lower exchange rate change has minimal impact on the property market.
There is concern that some sections of the media are drumming up a potential house price crash.
Another article on the response of the inflation and interest rate hike reads, “homeowners could be dealt a huge blow after being warned that when the Government is able to gain control of the situation the UK could be heading for a massive house price crash.
“Graham Cox, director of Bristol-based Self Employed Mortgage Hub, warned 1.8 million borrowers exiting fixed-rate deals next year “simply won’t be able to afford the mortgage payments.”
This is a huge exaggeration claim to create scaremongering in the market, according to Paul.
The Daily Express article continues, “Unless the Government steadies the ship, we’re heading for a house price crash of 20% to 40% over the next couple of years.
“There are 1.8 million borrowers coming off fixed-rate deals next year. They simply won’t be able to afford the mortgage payment, forcing them to sell or be repossessed.”
“If the pound does not start to recover, the Bank of England will likely make an emergency intervention and massively hike interest rates again – which had risen 1.75% to 2.25%.
Around 100,000 properties are bought and sold on any given month. Paul argues that “these numbers are not scary if you understand the overall market.”
Paul continued, “I started buying properties in the 1980s. The increase to 2.25% is very low compared to historic levels.”
Interest rates were as high as 18.45% in October 1981. The average over the period is 7%.
“We’re nowhere near that” Paul says comparing the current interest rate with historical figures. “By historical standards the rates are very benign, they’re very low.”
Paul emphasises that when you read things in the media, investors should be conscious about who has delivered the advice.
“You need to consider the background and self-interests of people making certain claims,” says Paul.
“If I were a journalist, I would like to make sure that my source is credible so that when someone asks about their background, they can respond with a backing that they are credible; that they have certain qualifications, a set experience, is an economist, owns millions of pounds of property or has been doing it for 40 years etc.”
Another article headline by The Financial Times states “Jump in mortgage rates threaten UK property price crash.”
The article continues, “Market turmoil leaves more than 2 million homeowners facing sharp rise in borrowing costs over the next two years.”
Millionaire property investor Paul says in response, “The low exchange rate of the pound against the dollar and the euro means that property is very cheap for international investors.
“The UK is a safe haven for people who want safe year-on-year house price growth.
“A UK home or property is very close to being unique. We have a very stable market in the UK. The infrastructure is not corrupt, house prices have been going up for a long time and rent is easily achievable.
“Compared to other asset classes, it is likely to generate more income. The banks’ saving account rates is still relatively low and with inflation, bank savings are losing value in real terms.
“Compared to the stock market, the property market has never crashed 40% in one year.
“It is not unusual for crypto currencies to half or reduce 70% in value in a year.
“In the last 12 months, average property values have increased 11.4% (according to Nationwide). For new homes this is a 14.5% increase.”
A report by Shelter and KPMG have estimated that average property prices will by £902,763 by 2034 on current trends.
“When I was born,” Paul continued, “the UK population was 50 million. It is now 70 million.”
“The UK market is based on an income in demand for houses as there is more people on a little crowded island.
“In order to keep pace with demand, we need to build 250,000 houses per year. We’re only building half of that.
“It makes a lot of sense to buy homes and rent them out to other people.”
What are the next steps?
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