UK property market is slowing but a crash is unlikely

With the Bank of England looking likely to increase base rates this autumn there are concerns that any increase might cause a fall in the property market, but while the UK property market is slowing, a crash is unlikely, according to Edinburgh-based property management firm DJ Alexander Ltd.

One of the UK’s largest family-run property management businesses, DJ Alexander has analysed official data and found that the exposure to a property crash in 2018 is not the same as 2007.

Property prices are currently flat and the annual rate of house price growth, according to the Halifax, has fallen for the third month in a row to 1.8% in July 2018 from around 4% last Autumn. With interest rates predicted to begin to rise once more pressure on hard pressed homeowners will increase.

David Alexander managing director of DJ Alexander Ltd, explained: “There are concerns that the property market may once more be facing a potential crash as prices have flattened and are falling in some areas such as London and the South East. But, unlike 2007, when the property market suddenly fell off a cliff this is unlikely to happen as lending, although continuing to rise, is not as high as eleven years ago. Almost £100 billion less (£263,982 million) was lent in the year to July 2018 compared to the 12 months to the start of the property collapse in July 2007 (£362,068 million).”

“Our recent analysis of outstanding mortgage debt by postcode did find that areas of London had experienced a 25 per cent increase in the last five years but in much of the UK these figures were static or even falling. There may, therefore, be some difficulties in the property market in certain areas but, unlike 2007, this will not be a collapse across the whole of the country.”

Further analysis reveals that arrears in the first quarter of this year were at their lowest since records began in 1994 and were 8 per cent lower than the same quarter of 2017. The volume of interest only mortgages has almost halved in the last six years to 1.7m outstanding with a 37 per cent lower value of £250 billion.

Mr Alexander continued: “With very low levels of arrears, fewer interest only mortgages, and stricter lending criteria the property market is more stable in its current form than its 2007 counterpart. That doesn’t mean there aren’t potential problems ahead.”

“There is growing evidence of an exodus of buy-to-let landlords from the market as financial and regulatory changes take hold making this a less attractive prospect for many individuals and companies. This may result in more properties going on the market not necessarily at the optimum time but simply because a landlord wants to exit the market. This could push prices in areas where landlords have over extended themselves and need to sell quickly so there may be areas with declining prices and a surfeit of supply.”

Mr Alexander added: “But this is not say that we are facing any kind of property crash. Indeed, a period of consolidation of pricing, and a cooling of the market is a regular occurrence in the property market and is to be expected and welcomed. For investors and individuals property is not a short term, quick fix investment but one that grows over time. At the moment we are in a time of uncertainty both politically and financially and markets like to know what is going to happen. This period will pass, and property prices will start to rise once more. Panic and overly negative predictions are more likely to create a crash than a calm reasoned approach to the market.”