Over the past decade, the UK housing market has been the subject of much speculation, with many property and financial experts predicting an inevitable house price crash due to unprecedented levels of debt, Brexit uncertainty, the cost of living crisis and a global economic downturn.
With house prices beginning to slow in the latter part of 2022, and early 2023, many people, homeowners and investors alike, are asking if a UK house price crash is on the horizon.
This article will cover all things house price crashes, the property market trends associated with a price crash and what we should expect over the next year.
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What Is A House Price Crash?
A house price crash is a sharp or sudden decline in property prices and sales, usually triggered by an economic downturn, increased mortgage rates or a cost of living crisis. The decline is commonly categorised when house prices are significantly lower than the average.
A house price crash usually follows a housing bubble, where the average sale price of a property is far greater than the home’s actual value. When a house price crash occurs, people who have invested heavily during a housing bubble may have financial difficulty.
Is A UK House Price Crash A Bad Thing?
A UK house price crash can be positive or negative depending on who you are and your stake in the property market.
For first-time buyers, a UK house price crash could be a great way to get on the property ladder, as houses which would otherwise be out of their budget could be bought at lower prices.
However, It could also mean that people feel more uncertain about their financial prospects, leading to decreased consumer spending and investment in the property market.
For most UK homeowners, a house price crash is an adverse event as the value of their home may decrease — especially if they have bought recently while house prices have been up.
Additionally, a significant decrease in house prices could increase repossession and foreclosure rates as people struggle to make mortgage payments against the cost of living crisis.
Past UK House Price Crash Trends
In the past, UK house price crashes have taken different forms depending on the economic and political situation. In the mid-1970s, the UK was experiencing widespread political and social unrest, which led to stagnation in house prices.
The 1950s saw a decline in house prices due to the UK’s first downturn since the Great Depression of the 1920s. In the early 1990s, the recession saw an 11% drop in house prices, while in 2008, the financial crisis resulted in the biggest fall in house prices in recent memory.
When Did The Last UK House Price Crash Happen?
The last UK house price crash happened between February 2008 and 2009, when prices fell by 15.60% and were the most significant quarterly drop over a decade.
The house price crash was caused by a global credit crunch, which led to a collapse in the worldwide banking system and a decline in consumer confidence and spending. The UK housing market was over-inflated before the crash, meaning that house prices were unsustainable and the collision was inevitable.
Deregulation in the financial industry and mortgage brokers also contributed to the crash, as lenders issued mortgages without thoroughly checking people’s ability to afford them.
Recent Trends In UK House Prices
As we have entered the new year, the UK housing market has entered a worrying start. Here are some of the UK house prices headlines:
- In the United Kingdom, the average sold house price has dropped by 5% between December 2022 at £285,425 and January 2023 at £281,172.
- According to Rightmove, the average asking price in January 2023 is £362,438, over 23% more than the actual sold price.
- According to Nationwide, in January 2023, the average UK house price fell for the fifth consecutive month.
- Some mortgage rates are returning to normal levels after they soared following the mini-budget last September.
- According to the Bank of England, demand for mortgages has hit rock bottom.
- Policymakers to increase the central bank’s base rate to 4% – the highest since the 2008 house price crash.
Why Have UK House Prices Been So High?
When there is a housing bubble or a house price crash, there are usually three critical reasons for a negative or positive trend; interest rates, inflation rates and demand.
Over the past decade, the Bank of England has, until recently, kept interest rates relatively low, which has allowed people to borrow more money to buy more houses.
When the UK entered its first lockdown in March 2020, there was a slump in house sales which didn’t restart until June 2020 — when the UK began to reopen.
In July 2020, the government introduced a temporary stamp duty holiday which offered home buyers a possible £15,000 off their tax bill when purchasing a home, which drove house sales skyrocketing.
Mortgage rates had also been significantly lower than they are today; in December 2021, for example, for a two-year fixed rate mortgage, you could expect 2.4%, whereas, in October 2022, you could expect over 6%.
There has also been a strong demand for homeownership, mainly due to the UK’s rising population and foreign investors pushing up the prices in urban areas and a dramatic need for housing.
Why Are UK House Prices Starting To Drop?
The United Kingdom’s economy has been battering over the last few years, ever since the stamp duty introduced during the pandemic was tapered out in 2021.
Partly in response to the disastrous Mini-Budget proposed by Liz Truss back in September, the Bank of England has recently increased their interest rates to their highest levels in 15 years to try and tackle rising inflation rates, which as a result, has made mortgages more expensive.
In October 2022, the mini-budget sent waves through the mortgage market as there was a dramatic increase in mortgage rates. The Bank of England’s base rate currently stands at 4% but is expected to rise a further 0.5% later this year — the best fixed-rate interest deals are expected to topple 5.5%.
High mortgage rates mean that many prospective buyers will need help to secure a mortgage, which will further pressure house prices. This, combined with the cost of living crisis, will mean that more people will fail lenders’ affordability assessments.
What Does ‘Slowing’ Mean In The Property Market?
If a housing market is slowing, the rate of new house sales is reducing as interest rates reduce property affordability by increasing the cost of borrowing. A slowing property market may indicate that a house price crash is looming as it shows that the demand to sell a property has declined.
What Are The Regional Differences?
All regions in the United Kingdom have seen a slowed housing market in recent months, from October to December 2022, with some experiencing dramatic declines:
| Region | House Sold Rate Decline |
| 1. South West England | -8.2% |
| 2. Wales | -8% |
| 3. East Midlands | -7% |
| 4. Yorkshire | -6.4% |
| 5. South East England | 6.1% |
| 6. West Midlands | -5.9% |
| 7. North West England | -5.3% |
| 8. East Anglia | -4.6% |
| 9. Northern Ireland | -4.6% |
| 10. Scotland | -4.5% |
| 11. London | -2.6% |
| 12. North East London | -2.2% |
How Do House Prices Differ For Different Types Of Property?
According to the Land Registry, there was a steady increase over 2022 for all property types.
In November 2022, the average price of a detached property in the UK was £464,745, a semi-detached was £286,285, and a terraced house was £242,533. In November 2021, the average price of a detached home was £420,244; semi-detached was £257,282 and terraced properties sold for £216,637.
House Price Crash Predictions
According to Rightmove’s House Price Forecast, in 2022, Great Britain saw a 5.6% rise in average asking prices, reaching £359,137 — almost £17,000 more than in 2021. They predict that the average asking prices will drop by 2% this year, but ultimately this will still be much higher than the levels of 2021.
Expert Opinion: Will House Prices Crash In 2023?
We spoke to Jonathan Christie and Karl McArdle, the Co-Chief Executive Officers of The Property Buying Company, a UK-based leading property cash-buyer, about whether they believe a house price crash is coming in 2023 and if this will have an effect on the rental market.
Karl said, “I believe that we won’t see a house price crash in 2023, but we will witness a balancing between the asking price and sold price gap which has occurred over the last decade.”
“I think we can expect to see a fall of around 5%, with the worst case scenario being around 8% over the next year, but this will bring the average house price down to levels seen just before the pandemic began.”
“This housing market correction will make houses much more affordable for first-time buyers and hopefully help release the tension created by the cost of living crisis.”
Jonny said, “But we can expect that the average rental prices will increase by up to 10% in 2023 for three reasons; inflation, lack of supply and interest rates.”
“High inflation will affect everything, including the rental market, as homeowners are finding it harder than ever to secure affordable mortgage terms and are therefore selling up and finding tenanted properties to live in at a fraction of the price.”
“Although many landlords may look to sell due to rising costs, many of these properties may not find their way back into the rental market, as first-time buyers often snap them up as the market is already constricted.”
“Rising interest rates pressure landlords as they often need to increase rents in line with borrowing costs. This could work out for the landlord as they will have higher future sale prices.”
Karl said, “Landlords should be wary of the changes to tax relief rules, as some landlords may face higher bills, as additional or higher-rate taxpayers can no longer claim a return on their mortgage payments.”
“Rental prices will increase dramatically in 2023, especially in London, as mortgage rates for landlords catapult. But, the UK’s property market will demand more rental properties as some people unable to afford mortgage payments are forced to turn to the rental market.”
“For landlords to benefit from the current rental market, they should look to ensure that they are offering competitive rental rates for their local area, they stay up-to-date on any changes to regulations, utilise technology like smart home systems to limit energy bills and develop a healthy network of contractors who can easily make repairs.”
“A few regulation changes that landlords should consider in 2023 are; the end of the second home tax ‘loophole’, commercial EPC rating minimum increase and the renter’s reform bill.”
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Looking To The Future…
If 2022 were anything to go by, the housing market would have an exciting year in 2023. If we look at the past decade, there is a trend that mirrors the years before the financial crisis of 2008, with housing bubbles and inflated house prices. But, it is not set in stone that this economic recession will lead to a dramatic house price crash.
Even if the UK did experience a housing market crash, it wouldn’t necessarily be damaging for everyone. It would finally allow first-time buyers to get onto the property ladder and fuel the property landlord industry.
At the moment, we have only seen signs of the property market slowing after the rate of housing sales has decreased over the last five months. The average sold house price has yet to drop below the purchasing price for many regions across the UK.
Tom is a Digital Content Writer passionate about sustainable property & property trends. Regardless of the subject, he will always write blogs of the best calibre. Read more about Tom here.
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