“Plus deteriorating consumer confidence, and we have all the ingredients for house prices to go into reverse”, Shaw says.
Property is overvalued, according Graham Cox, director at Self Employed Mortgage Hub, because it has been pumped higher by the cheap availability of credit and various government interventions like the stamp duty holiday and Help to Buy.
It is, he says, “ridiculous” that house prices in London are 13 times an average woman's income, and 8 times the average worker's earnings across the UK – nearly double the historical average.
Cox’s best guess is property prices will fall by at least 20 per cent over the next 18 months to two years. He adds: “No shortage of housing stock will prevent prices falling when people simply can't afford to borrow as much, or pay the new interest rate they are offered when remortgaging.”
What do you advise clients to do in these scenarios?
Quilter's Noye says in the current climate, it is important not to make any big decisions too hastily. Not all clients will be affected equally.
She explains: “When the markets are volatile, the best advice can often be to sit tight and wait, if people can afford the luxury of waiting for the markets to settle.”
Should house prices fall, for those on the property market with a good level of equity, the impact will be much smaller, Noye points out.
Likewise, for people who want to move home, they may be selling their home for less due to a fall in house prices but then the home they are looking to buy will likely be reduced in comparison to today’s prices too.
Borrowers who would see the biggest potential impact are those who have recently purchased their home with a small deposit and have a high LTV mortgage.
Noye adds: “If house prices were to fall as much as some have predicted, we could see more borrowers fall into negative equity, which would leave them with very limited options.”
Yet a 10 per cent drop in house prices to pre-Covid levels would be a welcomed impact for first-time buyers who have been struggling to get on the housing ladder because of the increased house costs and deposits required.
Professional financial advice will be all the more key when it comes to making an important decision such as whether to move home or take a first step onto the property ladder.
Laura Miller is a freelance journalist
