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

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

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

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

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

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 sundry acute than first thought.

“Although a house price correction is widely hope for as part of the ongoing recession, it appears to be unfolding faster than anticipated,” Kallum Pickering, senior economist at Berenberg, annulled 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 minor sanguine.

Nationwide, one of the U.K.’s largest mortgage providers, said earlier this month that house prices could disappear 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 little short of 18% to over 22%, respectively.

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

The U.K. is not alone. Rising interest rates, rise inflation and the economic shock from Russia’s war in Ukraine have weighed heavy on the global housing market.

Just out 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 all of a add up to the markets most at risk of declines of up to 15%-20%.

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

But the U.K.’s unique economic vista puts it at higher risk of mortgage delinquencies, according to Goldman Sachs. Factors at play include Britain’s decaying economic picture, the sensitivity of default rates to downturns, and the shorter duration of U.K. mortgages relative to euro zone and U.S. noblemen.

“Looking across countries, we see a relatively greater risk of a meaningful rise in mortgage delinquency rates in the U.K.,” Yulia Zhestkova, an economist at the bank, put in wrote in a report last week.

Meantime, rising unemployment risks — a historic barometer of delinquency rates — add to pressure on the U.K., which Goldman Sachs said is “already in economic downturn.”

The U.K. economy contracted 0.2% in the third quarter of 2022, latest GDP figures faired Friday. A further consecutive quarter of decline in the three months to December would indicate that the U.K. is in a technical depression.

The Bank of England warned earlier this month that the U.K. now faces its Not a 2008 financial crisis