Home prices dropped in July – are we heading for a housing market crash?

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UK property prices fell by 0.1%, marking the first time they have not increased in over a year.

Driven in part by the “space race” and a trend towards country living, property prices have soared in many areas of the UK since the start of the pandemic. But last month, the average home price dropped to £293,221 – representing a 0.1% drop month-on-month, according to the latest Halifax report.

The report also showed that mortgage approvals have dropped for the past five straight months, which could also indicate that housing market activity is cooling.

With the Bank of England raising interest rates to a 13-year high of 1.75% last Thursday, fears have increased that we are heading for a housing market collapse. But what do the experts think?

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“While I don’t believe we will see a total collapse of the housing market, I do believe that prices will start to fall further as the cost of living crisis worsens and inflation continues to rise,” says Simon Bath, CEO of iPlace Global. “With energy prices forecast to rise another 65% in October, people will simply not be able to pay mortgage payments on many properties they could have managed previously.”

Bath continues: “The July 0.1% drop in average home prices doesn’t sound like much, but it is hugely significant as it marks the first time in over a year that prices have not increased. For first-time buyers, the market is extremely scary right now and until prices come down, people would benefit enormously from the reintroduction of something like the Help to Buy scheme. There is a real lack of support right now, which is causing people to rely on Mom and Dad Bank to climb the ladder.”

Property in the UK has never been more inaccessible. According to the latest figures from the ONS, the average home sold in England costs 8.7 times the average annual disposable income – the worst affordability rate in the country since records began in 1999.

High prices are one of the reasons the current market has been compared to the bubble that led to the crash in 2008.

But like Bath, David Hannah — Group Chairman at Basic Tax — does not predict a housing market crash for 2022. “The increase in demand, even with the rise in interest rates, represented an adequate amount of liquidity [when assets such as properties can be readily bought and sold because of sufficient supply and demand], which is a good sign”, he says. “The 2008 crash happened because of a sudden loss of liquidity in the international banking market and we are not in the same situation again. We had the pandemic and substantial government spending because of that, which drove up interest rates.”

Hannah continues: “But the question has to be – will the global lending system be able to maintain the liquidity it lost in 2008? And I think the answer is yes, it will. We will certainly not see, as some people have predicted, 20, 30 or 50% declines in UK housing.”



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