Another property crash looms as history begins to repeat itself
Despite the safeguards currently in place, many experts believe the property market is facing a second major recession within 10 years – and that major changes will be needed to ensure it doesn’t happen.
“How do you persuade people to buy something today that they think will be cheaper tomorrow?”
Industry professionals often appear in newspapers and television offering their own personal insight regarding the direction of the property market, and many are easy to ignore. The above statement, however, is a quote by Henry Pryor – also known as the BBC’s favourite property expert. It was almost a decade ago when Henry had a story published in the Financial Times, despite mass disapproval from his peers in the field, where he claimed that the property market had topped out.
As we well know, Henry’s prophecy came true with one of the largest recessions the world has ever seen – but why is this relevant now? Simply because the above statement was not made in 2007, but by Henry in a report published on 31st May 2016 by the Financial Times – and few are willing to call his bluff this time around.
More worryingly, on this occasion Henry is not alone, with many UK property selling experts agreeing that the disparity between wage increases and house price increases has now reached a point considered by many to be untenable. It’s a similar situation to the years leading up to the 2007 recession, as the property market has increased by 20% in value between 2012 and 2016, with the average house price across the UK reaching £292,000, and as high as £552,000 in London.
With wages only reaching 78% of the rise expected by economists in the months leading into February, macro-research firm Fathom Consulting found that wages would have to rise ten times their current pace for the next five years in order to catch up with the radically high house prices.
Plus, the Royal Institute of Chartered Surveyors recently confirmed that in April this year that the number of enquiries regarding house purchases had dropped sharply, while the number of mortgage approvals had dropped by 8.6% – similar to figures provided during 2007. While there have been factors this year that could have conceivably affected the market, such as the stamp duty tax hike as well as the forthcoming Brexit vote, according to industry specialists there are too many precedents to dispel the negative rumours as sheer fear-mongering.
“There are plenty of headwinds facing London irrespective of the referendum vote,” said Richard Donnell, director of research at Hometrack, whose views will worry those sellers looking for a fast house sale. “It’s down to affordability – at some point you have to run out of buyers.”
For those looking to sell, there is always the alternative route of house buying companies, which are willing to offer cash for any house regardless of location or condition. But for those hoping to join the property ladder, the rent cycle and spiralling house costs have locked them into a life with little chance of upward social mobility, and without intervention by the government the country may be heading towards another recession, in spite of all precautions and safeguards put in place to prevent history repeating itself.