"Corrected" housing market is ripe for a new breed of boom

Phil Whitehouse

MCI Club

Banks are responding to the resulting demand for housing from a generation of first time buyers, excluded by price booms of yore and currently letting, by offering loans at extraordinarily attractive rates.

House prices. They’re consistently one of the biggest talking points in the UK and one of the areas that spark the most confusion. According to Paul Cheshire, professor of Economic Geography at the LSE, Britain is on the verge of a “significant correction in house prices” that could reduce values by up to 40% and plunge many new buyers into negative equity- a return to the ‘bad old days’ of the 1990s price crash. Meanwhile recent figures from the National Association of Estate Agents have revealed that more than three quarters of houses were sold for less than the asking price in May- a rise of 5% on equivalent sales for the previous month. What’s more, Nationwide reported in June that prices had fallen for the third month in a row- the first time such a consecutive fall had happened since the financial crisis. So, what is causing the house prices to stall (or worse) and what can brokers do to mitigate and prepare for such an eventuality?

Most experts agree that the uncertainty of Brexit has been a defining factor in dwindling market fortunes. A 12% decline in the value of the pound over the last year has led to sharp increases in inflation (up 2% on June of last year) and an attendant fall in real incomes as wages fail to keep pace with prices. With more and more families struggling to deal with an inflationary budget strain therefore, demand for housing has started to fall. Properties are remaining on the market for much longer periods (37 more days in London before sale than February of last year) and sellers are being forced to lower asking prices in order to attract buyers.


A second factor could be that house prices are currently undergoing a ‘corrective’ response to sustained market value growth. Recent figures for the second quarter have shown that price growth in London (the traditional barometer for national prices) have risen at the weakest rate since 2012 (1.2% as opposed to a national growth rate of 2.8%). Many economists believe that this fall has been exacerbated by the rise in Stamp Duty as well as affordability issues, but an additional view states that the absolute level of prices has become so high that it’s impossible for them to expand any further. As Duty issues continue to hamper borrowing among buy-to-let landlords therefore (thus lowering prices), banks are responding to the resulting demand for housing from a generation of first time buyers, excluded by price booms of yore and currently letting, by offering loans at extraordinarily attractive rates. Some experts have argued that as long as interest rates and availability of housing remain low (thus stimulating demand and affordability), then the needs of this ‘lost’ generation can provide a bulwark against a wholesale price slump. In the meantime, with Nationwide forecasts for national price growth at a steady (if unspectacular) 2%, then it may be time for brokers to ignore the doom mongers and prepare to embrace a ‘corrected’ market that is ripe for a new breed of boom.

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