People keep asking me whether the UK is heading for a house price crash.

The honest answer is that nobody knows for certain. But what we can do is assess the risks, and right now those risks are much greater than many people seem willing to admit.

The UK housing market was already weakening before the latest economic shocks emerged. Mortgage rates remain far higher than they were for most of the last fifteen years. Affordability is stretched. Many buyers are struggling. Many sellers cannot achieve the prices they hoped for. Transactions are slowing, and confidence is weakening.

Against that backdrop, I examine three possible futures for the housing market.

The first is the best-case scenario. House prices stagnate, activity slows, and inflation gradually erodes property values in real terms. That would be uncomfortable, but manageable.

The second scenario is much more serious. A deeper recession, driven by rising energy costs, inflation, higher interest rates and falling household incomes, could trigger significant house price falls, widespread negative equity and a frozen property market. Many people would find themselves unable to move, while some could lose their homes altogether.

The third scenario is the one nobody wants to discuss. If we get a wider financial crisis, banks, pension funds and credit markets come under pressure, mortgage lending could contract sharply, and house prices could experience falls on a scale not seen for decades.

In this video, I explain what each of these scenarios could mean for homeowners, landlords, renters and anyone hoping to buy a property. I also discuss why liquidity matters more than paper wealth in a crisis, why financial resilience is now essential, and why some households may need to rethink their plans before economic conditions deteriorate further.

This is not a prediction. It is a risk assessment.

But if you have a mortgage, own a home, rent a property, or hope to buy one in the near future, these are risks that you cannot afford to ignore.

This is the audio version:

The Debate Ammunition for this video is available here.

This is the transcript:

People keep asking me, " Will the war in the Gulf trigger a UK housing crash?" And the honest answer is that nobody can answer that question at present with confidence. But the fact is that there are a range of scenarios that we can look at, and three stand out as possible situations that could arise.

And let me stress this: recession alone is not the only risk we face. A wider financial crisis in our economy, which is possible, could change everything with regard to UK house prices. So, you need to run through this whole video to understand the risks that you might face, whether you are a homeowner, whether you are a landlord, whether you've got a mortgage, and whether you are thinking of moving property now.

Let's look at the background to this.

The UK housing market is already weakening. There are signs that prices are falling, and as we know, mortgage rates are now higher than they have been ever since the 2008 global financial crisis. Affordability is being squeezed for many households, and buyers are becoming more cautious. The stories of people unable to sell are being heard everywhere, and transactions have already slowed in many areas. The possibility that a crash might happen seems to be very real right now. And the question that people are asking about the potential of a housing crash is therefore one that is worth giving attention to.

There are three scenarios to look at.

The first is one where we face a mild recession. This, I think, is going to be the best outcome we can expect as a consequence of Trump's war. We know we are going to face economic difficulties as a consequence of it. Oil prices are rising. It is likely that interest rates are going to rise, inflation is going to rise, and there will be knock-on effects of all of this into the economy. The economy will definitely slow, and maybe unemployment will edge upwards.

That's the best we can hope for at present, and I stress in this situation, there is no major financial crash, and my prediction is that the housing market will stagnate. It's unlikely that there will be a crash. Real house prices, those adjusted by inflation, could fall by 5 to 10 per cent, but cash prices might either be static or fall a bit.

The fact is, the reaction of most people will simply be to delay moving. Buyers will be waiting for better conditions. Sellers will be uncertain about the price they can get, and activity will slow right across the housing market. This will be uncomfortable, but we've been here before. This is not unlike what happened after 2008, and we got through it, although it took a few years for the market to normalise again. This is our best possible outcome from the situation that we are facing right now. Stagnation is what we should hope for, and that's really worrying.

The second scenario that I want to look at is something more serious.

That is a deeper recession. This will be caused by energy price rises, hitting $160 a barrel and more with regard to oil. It will arise because of the shortages of gas, and we will face real shortages with regard to food and other raw material supplies. And that is going to have a real impact on household disposable income. It is going to have a real impact on interest rates because I suspect that the Bank of England will be pushing those up to far too high a rate. And in this situation, where trade is going to be disrupted, and businesses are going to fail, unemployment is going to rise, and confidence is going to fall.

As a result, we will face a much larger house price correction. A recession would hurt. Real house prices, those adjusted by inflation, could fall by 15 to 20%. That's entirely possible. That is a dramatic fall in the average price of a house. If that average at the moment is, and it depends where you are, around £300,000, we could be looking at average house prices of £240,000 instead.

Most recent buyers could end up finding themselves in negative equity as a consequence. In other words, they would have a mortgage on their property, which was bigger than the value of their property if they came to sell it, meaning that without some serious savings or backup, they could not move. And mortgage lenders would, as a result, become very much more cautious because they know that they are facing a portfolio that is already full of risk.

Housing transactions in this situation could very largely freeze. Many lives could be put on hold for years. And to some extent, this is the situation we saw in the late 1980s and the early 1990s when this situation was created by very high interest rates.

Some people could lose their homes. In this scenario, that isn't just possible; that is likely, and that happened back in the early 1990s. Repossessions were a normal part of UK life back then, and people suffered badly and faced debts they could not afford as a consequence, without a home to live in.

Scenario three is even worse, though.

In scenario three, we face a financial crisis. This is what happens if we face a major credit event. This could happen if we get a major stock market crash, a failure in the secondary banking market and major bad debts in our banks, giving rise to enormous pressure on the banking system so that another bailout is required. In that situation, both banks and pension funds will be in trouble. The government will have to intervene. Commercial property and corporate debt could all weaken, and mortgage credit could become very, very much harder to obtain without very large deposits. Household incomes would also be under considerable strain, and there would be significant, and by that I mean serious, unemployment because large numbers of companies will fail.

A financial crisis of this sort could trigger a housing crash. House prices could fall by 30% in real terms, that's inflation-adjusted figures, and by more in current cash terms. Some regions could experience even larger falls, and those will be the ones where values are highest at present and overvaluation is therefore a real risk which might be exposed.

Now, I stress this is not my central forecast at the moment. I recognise it could happen. I would hope that the government would intervene to prevent it from doing so, but we have to consider this possibility in the risk scenarios that I'm talking about; we simply can't ignore the possibility that this crash might happen.

And let's be clear in all of this, we have to note the fact that the UK housing market is vulnerable to a crash. House prices remain far too high relative to earnings, at present. We simply are in a situation where, for many young people, and everybody knows this, the issue of affordability is a very real one. They cannot get onto the housing ladder. At the same time, many borrowers face much higher mortgage costs now than they have done over the last 15 years or so, and that is creating enormous financial strain already. And high rents have also been the consequence, and that has destroyed the financial resilience of many young people and has reduced the number of buyers as a result.

Meanwhile, buy-to-let landlords are already under pressure. They have to face new legislation, and the economy is weak before any new shocks arrive.

In all of this, government policy is offering little protection. There is no coherent housing strategy from this government, just as there was none from the previous governments from 2010 to 2024. Supply problems remain unresolved. House building is still too slow, too late and of the wrong type of property in far too many cases, and it's often in the wrong place. You might want to talk about new towns, but if there are no jobs there, why build in the place where the jobs aren't? We need social housing in the places where jobs are. And in this situation, the real one that we face, affordability continues to deteriorate. Policy has failed both owners and renters, and that is leaving the UK housing market highly exposed.

So what should homeowners, and landlords, and renters be doing now?

Long-term buyers should not panic. This is my fundamental point. If you've bought a home as a shelter and you can manage to fix your mortgage at a price that you can afford to pay, just sit this out. You will come out the other side, and that will be true of the vast majority of people in the UK. Let me stress this point. Even if we have a crash and a serious crash, if you can afford to pay your mortgage throughout the period when that goes on, we are likely to see you come out the other side, and you will probably still have equity in your house. You will still remain financially resilient.

But those stretching their finances at this moment should be very cautious. Stress test yourself against the risk of higher costs and lower income. See how that looks. Can you cut your spending now and build your financial resilience? This is absolutely essential. You have to look at this issue. You have to work out what you can cut out. You have to look at your mortgage deal, and denial will not help you at present. You need to work out if you can get to the other side of a crisis.

Don't worry about what the value of your property might be then, although you have to hope that you might still end up with positive equity in the property. But just look at whether you can afford to put a roof over your head. That is the most important thing that anyone needs, but you might have to make a sacrifice to get there. And I'm not going to deny the reality here. We are facing a crisis, and for some people, that is going to be personal.

You are going to be cutting out holidays, you're going to be cutting out treats, you're going to be cutting out nights out, you're going to be cutting out subscriptions and all of that just to survive. I'm sorry, but this is a reality; I can't get around it. And I'm suggesting you look at this process now because denial will not help.

This crisis could happen, and it might happen soon, and you need to be prepared for it. In that case, do ask whether, at this moment, when we still have a functioning housing market of sorts, whether this is the moment for you to sell and rent as an alternative to owning a property, which looks as though it might become unaffordable. That is a difficult decision to make. But can you quite literally downsize into a smaller rented property and keep your financial solvency? I don't know whether that will be possible for you, but it's amongst the things you will need to look at if you think you may not be able to afford the property you've already got and the mortgage on it.

Building cash reserves at this moment, if you can do so, is the most important thing you can do. And if you can find a fixed mortgage that you can afford, that has real value.

But, and now I'm going to move to another scenario. If you're looking to buy at this moment, and you don't have to, but this is a discretionary move, unless it's downsizing, which you might well consider, do wonder about delaying your purchase.

And let's move on to look at the situation if you're a landlord or a renter.

Here, there are different risks that are facing you. Highly leveraged landlords should expect difficult years to come. If you've got properties with very large mortgages on them and you're letting them out, my suggestion is that you might be looking at some difficult years to come. Higher interest rates and falling prices are going to threaten your financial returns, and most landlords are not in the market out of social goodwill or concern for their tenants; they're in the market to make money. And the fact is that right now, the situation with regard to making money from buy-to-let looks very tight indeed.

Regulation and political pressure are increasing. So do you need to sell now? This is the question I'm asking. I know it will not make me popular with your tenants, but the fact is, this is something that you might need to do to survive. And you have to hope that somebody will buy the property and continue to let it to those who want to occupy it, because let's be honest, the property isn't going away.

And renters in this situation should not assume a crash will create affordability for them. I have to make that point. That is not the case. Rising interest rates tend to mean rising rents. There's nothing about this situation which is going to look good for you if you are renting. Banks may tighten lending for landlords. There may not be as many properties available as there are now. Nothing suggests that there is going to be a good rental market for years to come. I'm sorry to tell you this, but that's the way it feels.

So, what is my best judgment and my final advice?

Let's remember, there are three scenarios to look at. One is the situation of having a mild recession. And in that situation, we get a modest fall in house prices, maybe 10%, maybe less, and the fall will probably be in the inflation-adjusted price. In most areas, it will have little impact on the cash price. And we've been here before, as I've already said. This is the best we can hope for. It's not going to be comfortable, but very few people are going to leave their homes, and most people in rented accommodation are going to feel some pressure, but they're not going to be up against the wall.

We could instead have a real Gulf War recession; that's my second scenario, and that could cut property prices by 10 to 20%, depending on where you are. The biggest cuts are likely to be in the highest-priced areas; that's what the evidence so far shows. This is going to be uncomfortable. There are going to be people who lose their homes. We've been here before. It was the early 1990s, and the evidence was that people who were last into the market were those who faced the highest risk because they had very high mortgage ratios to property valuation, and they ended up with negative equity. In other words, when they sold, they couldn't cover the sum that they owed back on the mortgages they had. But they couldn't afford the mortgage either.

And my third scenario was that we have a full-on financial crisis, and this could result in a fall in property prices of between 25% and 30%.

This is serious. Which will we get? Look, I don't know. I don't think we're going to get that full-on financial crisis. I do think governments would have to intervene to prevent that. That is my hope.

The best we can hope for is my first scenario, where we just get stagnation.

I think you have to plan for the second possibility, though. There is a risk we're heading for a real recession. The absolute shortages in the supply of oil, gas, food and other supplies are all in combination going to fuel inflation, and we are going to see difficulties, and we are going to see companies fail, and we are going to see rising prices alongside inflation.

This is what could create that second scenario. And I don't think that, at this point in time, we have governments who would be willing to intervene to the scale required to prevent that, even though they could. That's my point. Even though they could, they won't, so the risk is going to fall on you. You have to think about it. And in this situation, liquidity matters more than paper wealth. That's always true in a crisis. What you can sell your house for doesn't matter if you're not going to sell it, but your ability to pay for it does matter.

The safest people will be those with financial resilience and not the biggest houses. So, my message is if you can still downsize, and that's within your planning scenarios, do, because that might provide you with the opportunity to survive.

This situation is not good. It's profoundly worrying. The only people who are going to come out of this very well are those of around my age who've paid off their mortgage because they can survive what is going to happen.

For everybody else who's at risk with regard to debt on properties, there is going to be a crisis. There is going to be pressure. This is going to be uncomfortable, and let's not deny it. The point is you need to plan for it. And that last option of downsizing with the alternative of downsizing to rent is something that some people will need to think about because that might be the mechanism you need to adopt to get through the pressure of a mortgage you can't afford.

Keeping a roof over your head is your key objective. Bear that in mind. Take the necessary steps and do get financial advice. If you're in trouble, go to talk to your mortgage provider. Go to talk to your financial advisor. Go to talk to Citizens Advice. Do find help. This is critical. Do not worry alone. These things can be managed, but you have to do your homework so that when you go to see somebody, you know about what you are asking for help with.

Good luck. That's the best I can say. And I'm sorry to share this gloom with you, but I'm saying what I really think.

What do you think? There's a poll down below. Please let us have your comments. Please do like this video if you can bear to do so, and please do share it. And if you want to buy Tom and me a coffee, that would be great.

Poll

 Loading ...

PDF of article