Property pundits play down 40% house price crash warning

3 July 2017

Property prices are on the brink of a crash, a former government housing adviser has warned.

Paul Cheshire, professor of economic geography at the London School of Economics, told The Mail on Sunday that house prices could drop significantly – to the point where homeowners are left in negative equity, which means their homes are worth less than the mortgages they have taken out to pay for them.

Professor Cheshire said: “We are due a significant correction in house prices. I think we are beginning to see signs that correction may be starting. Historically, trends seem always to start in London and then move out across the rest of the country. In the capital, you are seeing house prices rising less rapidly than in other parts of Britain.”

He adds that this will be fuelled by wages failing to keep up with general increases in prices. Inflation reached 2.9% in May, while incomes only went up by 2.1%.

The most recent house price index for April from the Office for National Statistics put the average price of a UK property at £220,094 – up by 5.6% over the year. However, it confirmed that there has been a general slowdown in the annual growth rate since mid-2016.

The Royal Institution of Chartered Surveyors UK Residential Market Survey results for May pointed to a “lacklustre” conditions, with enquiries, instructions and sales all declining over the month. It also said that price growth, although still positive appeared to have “lost momentum” and said that a “further cooling” was likely in the near term. 

‘A 40% correction would catch many recent buyers’

With a similar picture of the housing market now as in the early 1990s, The Mail on Sunday report suggests that house prices could plummet by as much as 40%.

Buying agent and property pundit Henry Pryor told Moneywise that even if this figure were correct, its impact would mainly affect recent buyers.

He says: “As one of the only people to warn of the imminent crisis back in January 2007 and who was warning again that the market might have topped out 18 months ago, I have some sympathy with the professor. 40% will seem like a huge amount to many, but in parts of the UK house prices have risen at 10% a year and in parts of London homes are worth twice what they were back in 2010.

“A 40% correction would catch many recent buyers out but only one third of homeowners have a mortgage and 40% of current buyers are cash-only and won’t be affected by the inevitable rise in interest rates. 

“Will prices fall? Yes, the market is cyclical and what goes up eventually comes down. Will they fall by 40%? Well, there is a part of the UK where house prices are half what they were just before the credit crunch a decade ago. It’s Northern Ireland.

But if house prices were to fall by 40%, Mr Pryor doesn’t believe that it would necessarily be a disaster even for recent buyers, adding: “The latest buyers to enter the market would suffer, but mortgage lenders have been forced to stress-test existing borrowers in a way they haven’t before and most would be able to take the higher costs.”

Earlier this month, Moneywise reported that house prices are up on average by £3,500 month on month.

‘This is pure sensationalism’

However, Russell Quirk, chief executive of online estate agent eMoov, believes the report is sensationalist and the house prices are unlikely to crash any time soon.

He says: This is pure sensationalism and from the desk of just one commentator. It's hardly made of scientific stuff rather total conjecture, no doubt to grab a headline. The reality is that the rate of house price growth has slowed in the past few months, yet property prices remain higher than a year ago.

“Frankly, to contend that a slowdown in growth then necessitates a crash must follow is as unfounded as believing that a slight dip in the FTSE would lead to a return to the 1930s depression. It's bunkum.

“Demand for UK property continues to outstrip supply and with money costs at record lows still, the medium- and long-term outlook for the market is bound to be positive.” 


In reply to by anonymous_stub (not verified)

Property’s have been overvalued for decades now and they are not worth the money you pay. Lack of building was a sly way of increasing the value and now it’s all a big mess thanks government it’s not gold just bricks and a bit of land.

In reply to by anonymous_stub (not verified)

House prices are far too high and need to be checked; however talk of 40% falls is ridiculous

In reply to by anonymous_stub (not verified)

The price correction in housing which will destroy the UK market should be aligned with the world markets to use, local stats like supply and demand is irrelevant. The world bond market meltdown when it unfolds will take fixed asset prices globally to historical lows. Those who have ignored or failed to secure their financial positions will lose their shirts.

In reply to by anonymous_stub (not verified)

Who knows what will happen once prices start to fall. We are in uncharted territory, as usually the Bank of England would cut interest rates to avoid a crash, but with the base rate at .25% that option is not available.

In reply to by anonymous_stub (not verified)

Estate agent says prices won't fall...stop press!

In reply to by anonymous_stub (not verified)

we are about due a drop in property prices, but by 40%? i doubt it, does it matter, house prices are relative and just like stocks and shares you only make that lose if and when you sell, so sit tight and ride it out, on the positive side if property prices do drop it will be a good time to buy more

In reply to by anonymous_stub (not verified)

These so called Pundit's need their Brains (if they have any) tested. They just wake up in the morning, maybe from the wrong side of the bed, and act like Trump.

In reply to by anonymous_stub (not verified)

This stuff is coming from 1 or few experts but they should know the fact that comparing the 90s figures. data and numbers with 2017 and sying to the media these are a way of predicting the economy and the proprety market in the near future. This is totally wrong and it will tell you nothing about the UK economy future. There is no comparison between the 90s and the 2017. 2 different world's all together. In the 90s you had to wait 5 days for a bank transaction, the Internet was useless tool banking, finance Business, work force working methodso and environment......all these will never be equal or the same as the 90s...Not to forget the increased population which is the big force behind the economy and the housing market. ..and much more..Business and banck are now smarter than the 90s even than the 2008 the time of the global economy crises. the big shock of Brexit vote result didn't cause any serious problems to the economy nor the property market evenafter all the negative news and forecasts we have been hearing since June 2016. There are still many negative forecasts, and opinions .and still not stopping the UK economy from doing it job.In order to compare the 90s with the 2017 and come with a possible events than the world will have to go back to the future. The fact that the world population is growing and growing more work force more businesses more activities smarter people with mazing brains and harder to milk and fraud the systems millions or by billions...these are some of many the things which has no comparison with the 90s. Yes there are possibilities for the world to go through on other economy crises. ..and if it happens. .it will be due to something new and surprising. If this happens everyone will suffer somehow to a different degrees. For the property market yes it will suffer. Bargain huntera will take advantage but not if the home owners decide hold on to their properties. I think a massive % of home owners will do this because they know how fast house price will rise when the economy start to recover and they know their properties will be worth much more when the economy recover...and this is because of the low supply and the high population and demand but because the cost of building materials Land,labour and other cost will all ways go up and up...One example to build aaverage 3 bead room house in the UK. Will cost you between £270.000 and £320.00. with out including the prices for the land , legal documents and the VAT.In some cities finding a 200m2 of land is nearly impossible specially in London and it will cost over £250.00.Many people with some authority and in high positions are doing no good to the UK economy by causing panic and uncertainties using Brexit issue in a negative ways. Many been proved wrong so fare.

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