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UK house prices: expect slippage but no GFC-style crash

A fellow columnist did not merely predict a UK house price crash some while ago. He also stayed out of the market. His outlay in buying a costly dwelling years later serves as a terrible warning against taking one’s own financial advice.

Pundits are once again forecasting that the UK property souffle will collapse. Interest rates are rising and real incomes are deteriorating. Zoopla has provided some apparent evidence. Buyer demand has fallen by almost half since Liz Truss’s “mini” budget derailed the mortgage market in September, the property portal said on Monday.

However, a crash presupposes a bubble. Has there been one? It is true that nominal house-price growth neared a two-decade high earlier this year. But the increase remains restrained by historic standards. A drastic correction is a distant prospect too.

During previous periods of UK housing exuberance, nominal prices rose faster and for longer. Average annual price growth in nominal terms peaked at about 30 per cent during each of the four big postwar bubbles. The most recent peak in the rate was at half that.

Adjusted for the overall levels of price growth, the highest average of previous bubbles falls to 20 per cent. The most recent real top pace hit about a third of that.

The restraint is largely down to changes in lending curbs brought in after the great financial crisis. Dodges such as self-certification of income and zero deposit mortgages were prohibited. Transaction volumes never fully recovered to pre-crisis levels.

It is true that at seven times average earnings, a UK dwelling has never been less affordable. The ratio is almost double that in London.

Businesses dependent on property transactions, such as housebuilder Persimmon, have suffered share-price drops of more than 50 per cent. Even the stock of dominant property portal Rightmove has fallen by less than a third.

But with stretched first-time buyers scarce, there should be fewer forced sellers to create a downward spiral. Prices are certainly cooling. But the good news for house-hugging Brits is that a crash rivalling the GFC’s 20 per cent decline is unlikely.

The Lex team is interested in hearing more from readers. Please tell us whether you think there will be a UK house price crash in the comments section below.

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