Property prices could fall by “20%+ over the next 2-3 years” – mortgage experts deliver their verdict

by | Sep 28, 2022

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After this week’s mayhem in the mortgage market, and with the base rate tipped to rise much higher to rein in inflation and stabilise Sterling, IFA Magazine asked mortgage experts and brokers whether a house price crash is imminent — and whether it’s now a buyer’s or seller’s market. 

Graham Cox, director of Bristol-based Self Employed Mortgage Hub“Unless we are very lucky and inflation falls much more quickly than predicted, I don’t see any other outcome than a sizeable fall in house prices, possibly 20%+ over the next 2-3 years. I’ll be accused of being a doom-monger, but if you use simple maths and common sense, how can house prices not fall? A lack of housing supply won’t help one iota when mortgage rates are somewhere between 5% and 7%, as is likely over the coming months. First-time buyers won’t be able to borrow as much, therefore they won’t be able to offer as much. It’s as simple as that. The truth is, housing is vastly overpriced and decoupled from average wages thanks to extended terms, higher income multiples and, above all, dirt cheap rates. With rates on the rise, the decade-long property bubble is about to burst. The worm has turned. It’s a buyer’s market now.”

Ian Hewett, founder of Ashford-based The Bearded Mortgage Broker: “Will there be a house price crash? Probably not is my thinking. Whilst waiting for my bacon sandwich this morning, I started browsing the local estate agents that are all clustered within a small area of my local town. I noticed that most of the windows were only showing a very small selection of houses for sale and, in some cases, the same house but with a different picture. This highlighted that it is still a sellers’ market as the lack of stock was startling. Yes, mortgage rates have increased dramatically, along with all household bills, so affordability is going to be a challenge, but the extreme lack of stock will likely prevent a crash even if demand drops off sharply. Without doubt, the housing market will stabilise and the rate of price growth will slow, perhaps considerably, but as always prices will start to go up again once the economy shows some signs of stability. People will always want to buy property, just as many of us will always want to buy bacon sandwiches to shift a hangover.”

Paul Neal of Derbyshire-based Missing Element Mortgage Services: “It’s utter carnage out there right now. The wheels are coming off the mortgage market. Lenders are still withdrawing products, leaving brokers unsure when they will actually open again. We currently have 22 lenders who have stopped lending completely, and this list is only getting longer. Without mortgages, the property market could go pop. Many of our clients are in a Mexican stand-off between pulling the trigger on a property transaction and fleeing the market altogether. So many are unsure about whether to proceed. We have a mixture of clients who are rushing to get their applications in, and others standing off and waiting to see what the future holds. It’s impossible to know where prices will be in a year’s time. All we know is that there is a ridiculous amount of uncertainty thanks to last week’s mini-Budget.”

Scott Taylor-Barr, financial adviser at Shropshire-based Carl Summers Financial Services: The UK housing market is vastly undersupplied and so a fall in prices can really only be triggered by a couple of things: someone building and then releasing a million homes onto the market all in one go, or lenders withdrawing mortgages meaning that only cash buyers, or those with really big deposits, can purchase. I’m not aware of anyone secretly building a million houses, but the second one is scarily looking like becoming a reality. Our hope is that markets settle quickly and lenders return with their full, albeit higher priced, product ranges soon. If not, the housing market is looking extremely vulnerable.”

Joe Garner, managing director at London-based property developer, NewPlace: In some areas there will very possibly be a crash, in others prices will stabilise, and in other areas still prices could increase. The type of property will also play a role in how it fares in the weeks and months ahead. While owner-occupied property prices are likely to fall due to the reduced availability of mortgages and liquidity, we will likely see a big shift upwards in the value of rental accommodation. People still need somewhere to live, and if they can’t buy, they have to rent. If the demand for rental properties increases then so do the rental payments, which in turn increases the yield, resulting in an uplift in the value of the rented property. As mortgage products come to an end, it appears to me that homeowners have two choices. They move onto a new product with the same lender and suffer the inevitable increase in payments or they sell out at below market value and move into rented accommodation.”

Michael O’Brien, managing director at Romford-based Home of Mortgages“The market is not in the grave position it was back in 2008 yet. For now at least, first-time buyers can still purchase with a 5% deposit. There’s no doubt that the cost of borrowing is increasing, however, faced with the alternative, namely the ever-increasing cost of renting, a mortgage is still a more comfortable alternative. That will likely support prices as people will still want to exit the rental market wherever possible.”

Rob Peters, director of Altrincham-based Simple Fast Mortgage: “If interest rates reach 6%, this will certainly price some buyers out of the market and put downward pressure on property values. Is the British demand for property strong enough to overpower a 6% interest rate? I am not sure. The property market is about to be tested like never before.”

Jamie Thompson of Manchester-based Jamie Thompson Mortgages: “The biggest factor in property price inflation has been the availability of mortgages. Give people the opportunity to borrow more money and pay it back over 30-40 years and they’ll borrow anything to get the property they want. More and more lenders increasing their maximum loan sizes and making their criteria more flexible in the past 12 months has been a major factor in pushing prices higher and higher. Now that dozens of lender have withdrawn all products, this could be the catalyst for a cliff edge drop in property prices.”

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