So this week Mortgage Solutions asked its panel of experts how likely they think a house price crash is and what it might look like?
Lawrence Bowles, research analyst at Savills believes there is no house price bubble but markets across the country will become more popular than the capital.
Richard Donnell, insight director at Hometrack notes that the market looks similar to 2001 and expects a slowdown to more normal levels.
E.surv director Richard Sexton suggests the key driver is limited housing stock and it will be political action to solve this problem that is most important.
There’s not going to be a crash, there’s not a bubble.
There are some areas like London and the South East where affordability is a struggle – it’s out of reach for many people and as a result we are seeing a change in sentiment.
Nationwide and Zoopla are saying price falls in London. We are not seeing substantial price falls or anything near a crash, but we are expecting a slowdown in London and expect it to be slowest growing region over the next five years. And we’re expecting the North and North East to be fastest growing areas.
It might seem like the sky is falling if you’re based only in London, but it’s not that bad.
The Mortgage Market Review (MMR) means we are not likely to see large numbers of people completely unable to afford their mortgage so we are not likely to see prices fall ever so quickly.
Looking at the average ratio of house price to income; in the north west that’s about five times salary, in London its 12.5 times. Average deposit in NW is 19k which is still a lot of money, in London its around 99k depending on how you round it.
That’s a very stretched market so there’s very limited chance for future growth.
Any easing of the market is likely to come as we see earnings catch-up and we are expecting earnings growth to return to real growth.
Richard Donnell, insight director at Hometrack
There’s almost two housing markets at the moment – one being the greater London and commuter area and then the rest of the country.
In London following significant price rises over the last seven years transaction volumes are down about 10% from the peak in 2014 and likely to slip back a little bit more.
There’s still demand for housing, but when the market’s been rising so fast and then there’s weaker more price sensitive demand, activity levels slow with a drawn-out period and the strong market conditions are forgotten.
However, in the Midlands and north of England, house prices look much more affordable against earnings and house prices are rising quite steadily at 6-8% a year. And in Scotland things are picking up there.
There’s a lot of similarity with where the market was in 2001. London house prices rocketed away ahead of the rest of the country between 1993- 2000/01 and when the dot com bubble burst London looked very expensive to the rest of the UK.
So transactions fell, London underperformed the rest of the market and growth went elsewhere.
Anyone whose business is based in London, might have a slightly more pessimistic view than if operating in the Midlands.
Are we mistaking a slow down, back to basics, normal market, where you’ve got to work hard, for an imminent slump?
The big difference is everyone is being stress tested on affording a 7% mortgage rate now.
I think we’re set for a sluggish end to the year and then who knows, but I think Brexit is going to deliver a cloud over the market until 2019.
With recent sensationalist headlines claiming certain towns are at risk of a housing crash, it is understandable that some may interpret this as a sign of worse things to come. Yet when these figures are looked at closely, there are no signs of a bubble popping.
Mortgage approvals remained consistent over the summer months as buyers continue to take advantage of record low mortgage rates, with approvals 7.8% higher in August compared to the year before.
Comparisons to the last two years show there was a noticeable shrinking effect following the UK’s decision to leave the European Union and from Stamp Duty changes. Now, however, the market has recovered and is firmly on its feet.
What we are seeing is a shift in lending patterns from south to north, reflected by strong annual price growth in northern cities. Yorkshire and the North West now have the highest proportion of small deposit borrowers, with many first-time buyers choosing to go north in order to improve their chances of securing a mortgage and an affordable home.
However, if buyers continue to outstrip housing stock, demand will always remain high and house inflation will grow year-on-year. It will not be until the government addresses the supply side of the issue, through building more affordable housing, that a solution will be created and the imbalance resolved.