Will The Housing Crash Be More Devastating Than The Early 90s?

[TonyTeacake]

It looks like mortgages approvals have falling off a cliff from last summer.

Morgage Approvals
Aug 22 = 74443
Sep 22 = 66785
Oct 22 = 58018
Nov 22 = 46112
Dec 22 = 35612

You can see from the interest rate chart the rise in interest rates for mortgages has hampered affordability for most people.

The pendulum has now swung from a sellers to buyer's market. With 8% of the market being cash buyers this won't be enough to stop property prices from going down further as there isn't enough demand due to mortgage approvals falling substantially and there is so much more stock coming on the market with not enough buyers. Lower affordability means one thing house prices have to come down much further. Supply is now outstripping demand.
You can see this chart by RICS Chart: New Buyer Enquiries & New Vendor Instructions.

Also if we look at average wages they are not keeping up with inflation which you can see in the chart below.

To sum it up with inflation proving to be sticky we can expect more interest rate hikes this year which is only going to affect the affordability of people buying houses even more. It looks like this crash has already started and I expect YOY average drops for 2023 to be around 10-15% with further drops going into 2024.

Please share your thoughts.

I’ve just re-mortgaged I’m not particularly happy with the rate at 4.2% and it’s added a huge £30 a month to my mortgage. I’m pretty sure will be able to cover that without too much trouble 🙄
I have one friend whose Mortgage or should I say her house is on paper 5 times her salary. But she makes 40 grand a year that the bank wouldn’t take into consideration when looking at the lending criteria so that’s 40,000 a year extra money that the bank doesn’t consider that she has, on paper, she might look stretched, but she’s not. Individual circumstances are so unique. It’s impossible for outsiders to judge.

I would guess 9 times out of 10, that is who a cash buyer is. They are not immune to interest rates because most buyers are taking out mortgages and the cash buyer has to sell into the market first, most of which will be mortgage buyers. There is no virtuous circle of cash only buyers in the daisy chain of house buying and selling. I can see mortgage rates at closer to 8% before this is finished. Where we live and want to sell, nobody is buying and asking prices are lower than 2 years ago. Where we want to move to asking prices are higher than last year and seem to be selling. The law of sod is at work.

Demand is still there but much reduced if you're relying on cash buyers and people who aren't impacted by lending restrictions and rate rises. And reduced demand will lead to prices falling.

East midlands:
Lots of reductions, even
on the (many) new builds
London, oxford, Cambridge, etc. are outliers, tbh and not indicative of the national picture
I wouldn't be surprised to see the BofE raise interest rates to 6% by the end of the year

I think it will be bad.

I hope not as I brought last summer but was naive and so I will not make that mistake again.
I'm expecting a 30% drop and trying to overpay (painfully cutting out budget) so we're in as little negative equity as possible. We had a 10% deposit and HTB.
Very aware I am utterly screwed.
I'm so angry at myself for being financially foolish with the biggest decision of our lives, but moving early would cost nearly £40k and wipe my emergency fund which doesn't seem smart with the recession coming.

I'd love to be wrong.

@electriclight There's no reduction in demand, there's an increase in demand year on year as our population expands but we build few new houses.

There's a shift in who is buying the houses, not a lack of demand. If people cannot buy they will rent because they still need somewhere to live. So rich people and companies will increasingly be the buyers of property. The rich are not running out of money to buy property with, they are getting richer while everyone else gets poorer. If you think we are headed for a property crash you are living in cuckoo land.

That's interesting. So even with figures showing that there are more houses on the market, fewer buyers, higher interest rates, stickier inflation, even 800 mortgage products pulled yesterday, you don't think that any of this will impact demand or the price of houses? I think things look worse than they did three months ago when this thread was started and think they'll look worse again in another three but I guess we'll find out.

I sold at a small loss in 1991 (first flat) and again in 1993 ( first house - had to move as husband got a good job opportunity in another area).
It didn’t matter - the next house we bought we made a huge profit on. The housing market always does have ups & downs.
I will admit though that we were lucky in that we had family help with the deposits. The problem with losing money on property is that this can swallow up your deposit on the next property, unless you are lucky to have someone who will help you get back on the housing ladder. If you don’t have that help then I guess you can’t afford to move until the property gains value. Which it inevitably will in time.
Our first flat was in London, we bought for 62k and sold for 60k. I looked it up recently and it last sold for 450k!

I work for a licensed conveyancers. We deal with property all over England. It’s getting busier not quieter.

I've noticed an increase in properties being sold with a tenant in situ, round my way.

To large investment type companies No Doubt, not your average, mum and dad investor.

I haven't looked at who is buying them, TBH, they're just coming on Rightmove and going again!

When I was looking at flats in London with my daughter last year ( 1 beds) they nearly all had tenants in situ at the viewing stage. My daughter was moaning that some of the tenants weren’t making much effort with mess or viewing slots but I explained to her that they didn’t have to oblige their LL by allowing viewings at all.
The tenants in the flat she bought did t move out until about 2 days before Exchange of Contracts. Lucky owner in some ways, to get the rent right up until Exchange of Contracts. However, I do strongly believe they could have got more money for the flat if they had advertised it empty, after doing a general spruce up as it looked unloved. And of course the buyer was taking a risk that the tenants would refuse to move out on time.

@electriclight yes, there are simply not enough houses to go round and this is getting worse not better as more and more people join the population - 600,000 + net migration.

Demand is therefore high and ever increasing because everyone needs somewhere to live.

Lack of affordable mortgages only affects those at the lower and middle of the income range who are priced out. However since the rich are continually getting even richer, they can still easily afford to buy and to rent out. Ditto with investment companies. Rents keep trending upwards.

Eventually the middle classes will be priced out of property ownership because property will be too expensive for them. There will be no dramatic housing crash, just a huge transfer of property ownership away from the middle classes to the rich.

Our natural population will be in decline from 2025 and immigrants mainly impact the rental market.

I don't doubt that houses will still be sold, obviously. But I think the squeeze on lending will impact prices yes. I think you are overstating the impact of cash buyers who are willing to overpay when they could take advantage of fewer buyers and negotiate down. Agree to disagree I guess. We'll find out soon enough.

wouldn't the fall in prices offset the lower deposit? As long as LTV is something like 20%? Thats what I am hoping anyway!

I am not sure that immigrants don't impact the buying market. I bought my flat with DH three years after moving to the UK. DH is a British citizen so that made it easier, but based on today's lending criteria, as long as one of us qualifies for premier banking, one can buy even if both parties don't have ILR.

Premier banking qualification is £75k which isn't super hard for professionals to reach, and certainly for people buying a house or flat in any of the major cities these days, it isn't an unusual salaries.

Interesting to hear the concern on this thread. I am looking to move currently, and the area around Stirling / Bridge of Allan / Dunblane I am looking at is a rather nuts market at present. Some of it is our Scottish 'offers over' system, but I have been outbid on 6 houses now - and all went for 24-32% above the valuation and offers over price. All six went to 'best and finals' closing date and last one had 19 bidders.
I know it is a nice place to stay, but I do wonder...

Love to see your evidence for inflation being about to come down. BoE admits rates are going up, Jeremy Hunt says he's ok with them going up and the markets are pricing in much higher rates. That's all because latest inflation figures didn't go down as far as expected. Rates could well hit 8% before the desired inflation % is reached. Long way to go yet, i'm afraid

Interesting! Reductions in London are stacking up higher with each week and stubborn inflation has signalled more rates rises. You're area must be a acutely unique bubble

"Our natural population will be in decline from 2025 and immigrants mainly impact the rental market"

The rental market does of course heavily impact the sales market though.
If the demand for rentals is high then this drives people and companies to buy houses to rent out and pushes up demand and price for the sales market.

Yep, this is bang on! Immigration doesn't impact sales; how many immigrants turn up with a deposit? How many immigrants will qualify for a mortgage? They'd need to have been here working and saving for some years first.

Immigration hits the rental market, which reflects the current business at the coal face

No because I was buying a more expensive property so I needed to have some actual cash to pay off the 2k negative equity and pay a small deposit on the next property.

My colleague turned up with a 60% deposit for a 425k house and had additional 80k to refurbish it. He now pays the mortgage (£800) using the interest from his savings. He bought after being here for two years.

I bought here after being here for 3.5 years (excluding the time as a student) as DH and I had saved 90k in 3 years living with MIL.

Oh but nowadays in more expensive areas, most people have at least 20% LTV. Simply because they have been paying off the mortgage and simply because they needed at least 10-15% LTV to even buy in the first place at the bare minimum. the bank only lends you 4 X the salary and salaries bear very little relation to property prices. So its either savings or bank of mum and dad or both.