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.”