UK property market at risk of major downturn as recession fears loom

LONDON — The U.K. property market may be verging on a major downturn, with some market watchers warning of a collapse in prices of up to 30% as data points to the biggest slump in demand since the Global Financial Crisis.

New homebuyer enquiries plunged in October to their lowest level since the 2008 financial crash, excluding the period during the first Covid-19 lockdown, the latest RICS housing surveyors report showed last week.

Meantime, the MSCI UK Quarterly Property Index, which tracks retail, office, industrial and residential property, slumped 4.3% in the three months to September, marking the sector’s worst performance since 2009.

The market slowdown marks a reprieve from a two-year, pandemic-induced home buying frenzy, with property transactions in September down 32% annually from a 2021 peak.

But as the era of cheap money fades, and the Bank of England doubles down on inflation-busting rate hikes to counter the chaotic mini-budget, economists say the downturn could be more acute than first thought.

“Although a house price correction is widely expected as part of the ongoing recession, it appears to be unfolding faster than anticipated,” Kallum Pickering, senior economist at Berenberg, wrote of the U.K. market Thursday.

The investment bank now sees U.K. property prices declining by around 10% by the second quarter of 2023. But some lenders are less sanguine.

Nationwide, one of the U.K.’s largest mortgage providers, said earlier this month that house prices could collapse by up to 30% in its worst-case scenario. Meanwhile, the gloomiest of 2023 estimates from banks Lloyds and Barclays point to drop-offs of almost 18% to over 22%, respectively.

Indeed, prices have already begun falling in some places, according to property search site Rightmove, which said Monday that sellers cut prices by 1.1% in October, taking the average price of a newly-marketed home to £366,999 ($431,000).

Recent analysis by Oxford Economics showed property prices look set to fall in nine of 18 advanced economies, with Australia, Canada, the Netherlands and New Zealand among the markets most at risk of declines of up to 15%-20%.

“This is the most worrying housing market outlook since 2007-2008, with markets poised between the prospect of modest declines and much steeper ones,” Adam Slater, lead economist at Oxford Economics, wrote last month.