Is A House Price Crash Coming?

It seems that predictions of a house price crash have been with us since the start of 2007, but it hasn’t happened yet. Experts such as Kate Barker, Alan Greenspan and the International Monetary Fund say UK house prices could be about to fall. Recent figures have indicated a cooling in the market, then along come the latest figures from Nationwide saying that house prices were up in October. Which way is it going?

There have been two years of strong house price inflation, but there have been signs this year that it has been weakening. Successive figures from the Land Registry, Halifax, Nationwide, Hometrack have all given slowdown messages for the industry. Despite Nationwide’s latest figures, they say that it would be wrong to see it as a sign that house prices were not weakening.

Other signs are that mortgage approvals are down and house repossessions are up. The Royal Institution of Chartered Surveyors also sees signs that the property market is cooling with the projections of its members.

Forecasts of housing market stagnation have been coming since autumn 2005, but since then lenders boosted the market by basing mortgages on higher salary multiples and relaxed rules on sub-prime customers. That helped to buoy the housing market and its prices.

This year, however, interest rates have reached 5.75%, and the credit crunch has caused lenders to rein in their lending. Together with the run at Northern Rock this has undermined consumer confidence, and they are beginning to sit tight and wait for things to get better. House prices have still risen in 2007, so the affordability gap has just got wider.

Another factor is the buy-to-let market which boomed when property prices were going up, but this market could come to a grinding halt if landlords cannot cover their costs, which could result in a surfeit of property on the market.

A lot of what is happening now happened before the last property crash in the early 1990s, and the fall seems to have begun, with Hometrack’s figures, if not Nationwide’s.

The most likely scenario is a soft landing rather than a crash, but a degree of price correction seems inevitable