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UK Housing Market Heading for a Property Crash

Housing-Market / UK Housing May 01, 2007 - 01:42 PM GMT

By: Nadeem_Walayat

Housing-Market The next rise in UK interest rates to 5.50% is anticipated in a little over a weeks time. This is expected to further impact on a slowing housing market in the UK. Statistics from the British Bankers Association showed a drop in the rate of mortgage approvals by 8% despite the market entering the traditionally strong summer period. UK interest rates are on target to hit The Market Oracle forecasts (as of August 2006, expanded upon in Nov 06), of 5.75% by September 2007. With the risks of even further rises thereafter should inflation continue to stay above CPI 3%

Spain's Housing market suffered a shock this past week, as the housing construction sector took a sharp plunge on the stock market. Spain's housing boom surpasses the UK's in length and magnitude and with over 500,000 UK citizens having participated in it through second and retirement homes. The effects of the Spanish housing bubble bursting will effect the UK second only to Spanish property investors.

The US housing market continues to tumble, with many UK companies participating either directly or indirectly in the US housing boom, these will start to feel the pinch in lack of revenues, especially in the construction sector and impact on the UK economy. Expectations are growing of the US housing slump pushing the US economy into recession during 2008, which will undoubtedly hit many more UK companies. The falling US house prices coupled with the falling dollar contribute further to the relative expensive pricing of the UK housing market in comparison.

The crunch point for UK housing market will come following the summer strength, when affordability concerns not only due to 5.50% interest rates, but also prospects of further rises to come later in the year are likely to trigger the unraveling of UK's housing market boom. Especially as many of the low initial interest rate fixed deals that house buyers have enjoyed during the boom have now been removed in light of rising interest rates and tightening world wide credit markets.

The UK property prices are at extremely high multiples of average earnings, ranging from X5 earnings to X13. The impact of rising interest rates, household bills such as energy and council tax, and the weakening overseas markets means that the crunch time has now finally come for the UK housing market.

UK property owners thinking of selling should perhaps do so sooner rather than later, as the picture during the second half of 2007 will increasingly start to look grim for property investors, as the substantial buy to let speculative brigade will lead the charge for the exit, thus further exacerbating the slump in house prices. For those that say its not going to happen, well that's what many property buyers across the atlantic were also saying not so long ago! As with all market peaks, there could be anecdotal triggers which are usually brought forward in hind site to mark milestones at market junctures, perhaps this time with the UK it could be the introduction of compulsory the Home Information Packs (Hips) on 1st of June, which could have the effect of slowing the market due to an anticipated increased probability of failure of transactions.

By Nadeem Walayat

Copyright © 2007 All Rights Reserved.

The is a FREE Daily Financial Markets Forecasting & Analysis online publication. We present in-depth analysis from a range of experienced market analysts on their views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on probable market direction.

Attention editors and publishers ! This article can be republished. Republished articles MUST include attribution the author and the above short paragraph including links to

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their personal financial advisors before engaging in any trading activities. We do not in any way warrant or guarantee the success of any action you take in reliance on our forecasts

© 2005-2016 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


02 May 07, 18:29
There have been endless forecasts over the last 5 years stating a top in the UK housing market is near.

You have not suggested any arguments of why the market will continue to rise such as immigration and lack of supply

We shall see if 'THIS TIME' it does peak, when ? this summer ?
Mike H
03 May 07, 06:37

Just because a crash hasn't happened doesn't mean one isn't on the cards. There is much tighter supply in Japan and yet property prices there are still only 25% of what they were at the height of the boom 17 years ago. There hasn't been an increase in homelessness in the UK, rents have risen a lot less than purchase prices and if there truly were pressures on supply neither of these things would be the case.

Cloie, I'd suggest you stop listening to the property only goes up brigade and open your eyes to the realities of speculation on any asset in limited supply (oil, gold, grain, houses).

Hope that helps!

03 May 07, 13:40
The USA has crashed, so why should not the UK ?
If anythign were carrying more debt than the americans. Yes Cloie makes soem good points about immigration and supply, but these points were also made last time around in the early 1990's
I would not be surprised if the UK housing market crashes later this year, especially if the interest rates do reach 5.75%
07 May 07, 23:53
Gays in Real Estate Investments

Whilst the US and partly Europe are experiencing realestate pricing collapse, so why in the Ocenia region such as NZ and Australia are the house prices climbing to the roof top ! Can anyone please explain if there is a sure bubble occuring in these places and would comparable results be the same as that of these places mentioned that had crashed their market values !..............Ricky

08 May 07, 22:34
Gays ????

What do you mean gays in real estate ?

i want to buy
08 May 07, 22:35
i want to buy

i want to buy but houses in the UK are too expensive, so I am looking forward to a big crash !

50% ! off !

People who think they are going ever higher are fools ! house prices in the UK are now ridiculously high ! ridiulously !

08 May 07, 22:45
Most expensive post codes

The most expensive postcode areas (to buy a one bedroom property based on local average wage) are;

1) BR 10.12 times salary mortgage required

2) TR 10.05

3) SW 9

4) NW 8.26

5) E 8.17

6) TQ 7.66

7) HR 7.61

8) CW 7.42

9) EC 7.34

10) WR 7.12

and the least expensive;

96) UB 4.73 times salary mortgage required

97) HU 4.72

98) DN 4.7

99) WN 4.68

100) BD 4.67

101) RG 4.61

102) SN 4.52

103) WF 4.39

104) BB 4.36

105) HX 3.52

The average for England/Wales is a 6.66x multiple to buy a one bedroom property based on a local average wage.

they used to say not to borrow more than 3.5% your salary, so HX is the only place in the UK where that still applies !

But look at BR (Bristol) TEN TIMES SALARY ! Ridiculous !

04 Jun 07, 00:59

Where's postcode HX?

04 Jun 07, 01:15

HX = West Yorkshire

29 Jun 07, 15:00
UK House Prices

I am glad we just signed our exchange and complete in 5 weeks stroll on I cant wait to go in rented and get our outgoings down in Suffolk, I am waiting for the interest rate to bit and it will, the uk debt per average person cant carry on otherwise the bank will own everyone and all that will happen is people will be paying all there earning in interest alone! it has happened in the US and we always follow..

17 Jul 07, 19:40
UK Housing Market

Property crashes happen when investor are selling to investor and they one realised that there is not enough end user to take them all off their hand.

If you really want to see a property crash, look in the direction of Bulgaria for the cheap stuff or even Dubai...

The UK market will most likely slow down, yes some area will see some price drop. This is called market adjustment, not crash...

Further more, historically, no Olympic host country has seen price drop nationally and even less the host city itself within the 5 years leading to the games...

So "I want to buy", may I suggest that you start earning more because I can't see you moving to UK anytime soon if you don't...

03 Aug 07, 19:28
Interest only timebomb

Chloie / Frederic - whilst no-one really knows what is going to happen and when unless they got a crystal ball may I please ask who exactly is going to keep this market going? Those who believe in ever rising property market forget two things. Firstly, salaries have hardly been increasing and secondly rents have only increased marginally since 2000.

If there was a real shortage of property then the rents would have been increasing in line with the sales prices. Most importantly, many people are (and almost all investors) are now only paying the interest on their mortgages. The original debt will still have to be paid.

My prediction: unless interest rates start falling significantly there will be a major correction by the end of 2008. In some areas prices will just stabilise but the most over-valued areas could face decreases of up to 30%.

Harriot williams
14 Aug 07, 10:36
Explain why US market effect UK housing market?

could someone kindly explain easily, why the american market effect the uk housing market.

As fourteen and find really confusing.

Thankyou kindly harriot.

07 Sep 07, 08:23
UK Housing - immigration

Immigration isnt going to keep prices up because the over 90% of immigrants are working in mimimum wage jobs i.e. about 10k "salary".

08 Sep 07, 18:33
UK Housing Market

I cannot see how the market can continue in its current climate. More and more first time buyers are being priced out of the housing market and no amount of part buy/part rent schemes are going to solve this.

I cannot afford to get on the property ladder and I am on a professional wage. The house I live in has risen by 100k in the past 5 years which is just rediculous. Something has to happen as I can see the market grinding to a hault.

Mr Sensible
07 Oct 07, 13:16

Does anyone else realise that the high value of houses is a little false and that they are valued based on houses actually sold, which could average a high value. If all the houses were sold at once, say everyone had decided to move into the next appropriate house for there needs, these prices would not be realised. Would it not be better for houses to be valued at cost ( a bit like cars, boats , etc ). That way, we would all only end up with personal loans of no more than a fraction of what people are paying for properties at the moment. Is it me or is it all about people taking their share along the line. Borrowing 200,000 rather than 100,000 just on the say of estate agents is ridiculous, with the interest rate for the mortgage bearing little importance. You are already agreeing to pay 100% interest/premium immediately you purchase!

Why build more houses if you are a builder when you can build one at twice the price.

If there is a housing shortage why have up to eight properties sold along my road in the last year? I bet that that number of properties being sold wasn't taken into account and reflected in the value of other properties sold in the area........

25 Jan 08, 05:05
UK Housing market.

I think it is inevitable that house prices will fall in value.

The reason for this is that over the last 10 years they have been seen as a sure fire investment, mainly from BTL buyers sick of being stung by the pensions market, but for everyone clambering on the gravy train to secure a foothold on the property ladder. Housing is now seen in the same light as other stock investment purchases, instead of 'secure homes' to bring up one's family. They have become commodity assets to be discussed as such over a meal and a bottle of fine wine with friends. As such, they will rise and fall to the whims of the market. If you have sucked in to believe they will alway rise in value, well those days are over. There is always a danger when trying to make a fast buck in any situation: it becomes just as easy to lose one too. We need to get back to buying houses to use as homes, not as cash cows to feed the greed.

Rich. Plymouth
28 Jan 08, 06:27
UK Housing Market

Hi, it’s not just the housing market that’s going to suffer, if you look at the past year how the government have propped up the housing market and even businesses not to mention our own wages in the form of Family Working Tax Credits… are we living in a communist state???? … Not quite but we have all been brainwashed by the endless TV shows on property prices and have you noticed how the news channels spend hours on the boom articles but only minutes on the crash!!!

Time to wake up UK… we are all sinking… but this time there are no life boats… the Local councils have sold them!!!

26 May 08, 00:06
Canadian Housing Crash

We are experiencing the exact same thing in Canada. But for some reason most Canadians still believe that the housing market will forever be a sellers market and that property values will appreciate for ever. Continued erosion in housing affordability in Canada has taking a toll on the ability for most buyers to pay, foreclosures are up double digits. Home owners and buyers where told that prices will never go down, supply will never meet demand, immigration will keep property values up, strong economy, low employment rate……….etc etc. All smoke and mirrors and time will only tell. Canada will soon be in a huge housingcrash just like U.S.A., and the U.K.

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