The current state of the housing market in the United Kingdom is cause for concern as property prices experience a significant decline. According to a leading property expert, house prices have already plummeted by 12.5% in real terms, with further drops anticipated in the future. The surge in mortgage costs, with average two-year fixes reaching a 15-year high of 6.7%, coupled with rising interest rates to combat stubbornly high inflation, has contributed to the decline.

Fastest annual rate in 12 years

Halifax recently reported that house prices fell at the fastest annual rate in 12 years, dropping by 2.6% to an average of £285,932. Rob Dix, from the Property Hub, has warned that a major crash in the housing market is already underway, especially when considering the impact of inflation. Although nominal house prices have only fallen by 4-5% so far, there is an expectation of a further 10 to 15% decline, possibly even more due to the already high prices in 2020.

Decline in house prices

The decline in house prices goes beyond nominal values. The depreciation of the pound, attributed to inflation, has contributed to the overall drop in property prices. When factoring in the real-term value and considering inflation, property prices in the UK have already fallen by 12.5%, effectively bringing them back to the levels observed in 2014.

The affordability of properties is influenced by several factors, including wages, rents, and the pound’s value. As the pound continues to lose value, wages and rents increase, resulting in a scenario where property prices, despite appearing stable, are actually declining. Individuals who pay their mortgages with their salaries and investors who rely on rental income are particularly affected by these dynamics.

Affordability of properties

The current projection for the housing market suggests a bleak future. With inflation running at 8% or higher, a scenario where property prices remain stagnant for another year could result in a real-terms drop of more than 20%. If prices experience a decline rather than remaining steady, the real-terms fall could surpass the one witnessed during the 2008 financial crisis.

It is important to recognise that the housing market is not simply awaiting a crash—it is already in the midst of one. This downward trend is likely to persist for at least another year. As evidence of the market’s instability, Zoopla reports that 42% of buyers are now negotiating discounts, resulting in an average reduction of 3.8% when purchasing a property.

Curbing inflation

The challenge of curbing inflation and addressing its long-term effects poses a significant obstacle for the government. Lord Lamont, a former Chancellor, acknowledges the impact of domestically generated inflation on services, which has been rising at a faster rate than in the United States or continental Europe. Additionally, rising energy and food prices contribute to the challenge, as increasing supply quickly enough to stabilise prices is difficult.

The implications of the housing market decline extend to house builders as well. Barratt Developments, a prominent housebuilding company, anticipates a significant drop in house builds due to cost-of-living pressures and rising mortgage rates affecting demand. The company projects a potential decline of up to 23% in build completions over 2023-24.

The current state of the housing market

In conclusion, the current state of the housing market in the United Kingdom is experiencing a significant decline in property prices. The combination of surging mortgage costs, rising interest rates, and inflation has resulted in a real-terms drop of 12.5%. Future predictions suggest further declines, potentially surpassing the decline observed during the 2008 financial crisis. The impact of inflation, along with the depreciation of the pound, has intensified the housing market crash. It is crucial for individuals, investors, and the government to navigate these challenging times and adapt to the evolving landscape.

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