Until very recently, the UK housing market was at its strongest before the EU referendum.
It is good to be optimistic, however, that said we must not delude ourselves to the reality we face.
Few commentators, nevertheless, are making upbeat predictions for our housing market performance for the next 12 months.
Things are getting worse and not better
If we look at the broader picture now, things are getting worse and not better.
Many countries are already predicting a downturn, in their housing market. At the bottom of this page, I have placed links to articles for 4 significant economies as a point of reference.
If we study the previous UK housing market crashes, we may get an idea of how serious the current crisis could get.
A 2020 housing market crash could be the worst market correction ever seen in the UK, according to Mr Richard Woolnough.
The Mr Woolnough, a bond manager at M&G’s, believes house prices went up significantly ahead of the downturn. There is a chance they could decline to record lows, worse than seen in previous housing market crashes.
Mr Woolnough said: “History suggests that when the UK housing market crashes, it tends to fall about 25%-30% from peak to trough in real terms, but given that UK house prices rose about 270% from 1995 to end of 2007, there is a risk that this crash could be worse,”.
IMF says UK housing 30% above model
“How far could UK house prices fall? The IMF said last autumn that UK house prices were 50% above where models suggested they should be, although this month, the IMF reduced that to 30%,”.
“Nobody knows how far prices could fall, as there is a considerable margin for error on long- term economic predictions.
“I believe this projection is likely to worsen because the banks are becoming increasingly reluctant to lend, which means mortgage approvals, and therefore house prices, could fall much further,” he said.
Recent data reveals that properties in London remain the most expensive at an average of £477,000, compared to the average of £247,000 in England.
Mr Howard Archer, a chief economic adviser to the forecasting group EY Item Club, said: coronavirus looks likely to slam the breaks on growth.
Mr Sajjad Ahmad, the CEO of the British Landlords Association, said: “The financial turmoil of the early ’90s and Lehman Brothers are ones I remember well. The property crash of the early ’90s, where we were kicked out of the ERM, is etched in my memory”.
Covid-19, the clouds hovering over us
“What I see now with the Covid-19, the clouds hovering over us, are worse than the crash of the 90S, or Lehman Brothers”.
“The Chancellor urgently needs to do some clever quantitative easing, to be micro-targeted, for us to stand any chance of avoiding a major housing market crash”.
“It is apparent quantitative easing is taking place, the question is, is it feeding through, to where it is needed?”
Small companies need a cash injection
“Self-employed and directors of small companies need a cash injection, as quickly as possible”.
He added: “US politicians, have been debating giving up to $1000, to $2000 to every adult. This may sound radical, but it highlights the seriousness of our predicament. This Covid-19 disaster is global; the results may be akin to the great depression of 1929 if our politicians do not act quickly.” he said.
Lenders factoring in crash
Some major UK lenders are already factoring in a housing market crash. In a message sent to mortgage brokers this morning, Halifax said it would no longer offer any mortgages with a “loan-to-value” (LTV) of more than 60%. This means, only buyers who are able to provide a 40% deposit will qualify for a mortgage.
UK housing market crash of 2008
The failure of Lehman Brothers left $700bn (£538bn) of liabilities which in turn created a seismic shock to the global financial system. The money markets around the world froze, and banks and companies in the developed economies suddenly found they could not borrow money to operate.
The US Federal Reserve, Chairman Ben Bernanke, called it “the worst financial crisis in global history”.
Central banks were compelled to lend to banks, on an enormous scale in order, to prevent a wave of financial sector bankruptcies of institutions even bigger than Lehman Brothers. Such a general collapse would have meant, all around the world, wages not being paid, cash machines not operating, panic and civil upheaval.
Gordon Brown’s private concern at the time was “If you can’t buy food or petrol, or medicine for your kids, people will just start breaking the windows and helping themselves it’ll be anarchy”.
Some of our banks, like the RBS group, were eventually bailed out, with unprecedented volumes of taxpayers money, to restore confidence, to the financial markets.
The 1990’s Housing Market Crash
The UK recession of 1991, in a nutshell, was due to high-interest rates, falling house prices and an overvalued exchange rate. Membership of the Exchange Rate Mechanism (EMR) from 1990 to 1992 was a fundamental factor in keeping interest rates much higher than was prudent.
Author: Marc Attwater
Date: Original 26th of March 2020. Updated 1st of August 2020