NEW! Our Hero’s Journey tool can help you with your next step towards financial freedom - click here to try now.
Advertiser Disclosure

Is a housing crash coming?

Is a housing crash coming?
Image source: Getty Images


Average UK house prices have surged to new record highs in the last two months. The month of April saw prices go up by 2.1%, the highest monthly increase in 17 years. The question now for buyers, sellers and agents is whether the figures can keep going up or whether we are heading for a housing crash.

Let’s take a look.

Plot your path towards financial freedom with our Hero’s Journey tool!

MyWalletHero is here to help you learn about taking control of your money, whether that’s paying off debt, working towards a short-term money goal, or investing for your future.

This tool can help you understand the next steps on your journey – simply choose a goal that best describes your current interests to get started.

What is happening to the housing market?

House prices in the UK have soared since the easing of lockdown.

The boom is attributable to a combination of factors that include:

  • pent up demand due to lockdown.
  • changes in people’s living requirements and preferences (e.g. demand for more room, outdoor space etc.)
  • the stamp duty holiday that has seen many people bring forward their planned house moves in order to save on stamp duty.

Several other factors have also come into play in recent months, positively affecting house prices. One is a relative scarcity of housing inventory, which has resulted in demand exceeding supply.

There has also been an increase in household savings. Those who have kept their jobs during the pandemic have been able to save more. They are now in a better position to buy a new home and many have moved their anticipated home purchase forward.

Another factor is government support for 95% mortgages through the mortgage guarantee scheme. This has increased many first time buyers’ ability to access a mortgage and get on the property ladder.

The result of all this has been soaring house prices.

Is a housing crash on the way?

Few analysts expect the current pace of growth to continue forever. In fact, some are already warning that the market is overheating.

However, the outlook for the next six months is quite positive. Many analysts predict that prices will continue to rise and that a housing crash is unlikely in the short term.

That is because some of the main conditions or factors that are currently driving prices up are expected to remain in place. 

According to the Royal Institution of Chartered Surveyors (RICS), the ratio of buyer demand to supply is at its highest level in nearly two decades, owing to a severe shortage of houses for sale.

Even though the stamp duty holiday is coming to an end soon, the current imbalance between supply and demand is likely to continue fuelling price growth alongside the other aforementioned factors.

When could house prices crash or level out?

No one knows for certain when the current situation will ease.

Previously, one concern was unemployment, and whether the end of the furlough scheme in September would result in an increase in job losses.

However, massive progress in the country’s reopening and the rapid pace of the vaccination programme have cut down this risk.

The outlook for the UK economy has become increasingly positive, with experts predicting the biggest economic boom since the post-war period. Early signs are that unemployment could be lower than previously anticipated, meaning fewer homeowners will be forced to sell.

Of course, nothing is guaranteed and things could change. New Covid-19 strains, such as the Indian variant, could set the economy back and affect market confidence and optimism.

At the moment, however, demand continues to outstrip supply. According to analysts, until supply levels begin to rise and the current imbalance between demand and supply is resolved, house prices are likely to continue rising.

Was this article helpful?
YesNo

4 iron-clad rules for saving money on everything

Our Editor Sam Robson has been on a personal cost-cutting mission for years – and it’s time to share his wisdom.

Check out his choicest saving tips and tricks in this free report, “Sam’s 4 Iron-Clad Rules For Saving Money On Everything”.

Just enter your email below for instant access to your free copy.

By checking this box and submitting your email address, you agree to MyWalletHero sending you emails with money tips, along with details of products and services that we think might interest you. You can unsubscribe from future emails at any time. You also consent to us processing your personal data in line with our privacy policy, and our cookie statement. For more information, including how we collect, store, and handle personal data, please read our Privacy Statement and Terms & Conditions.


Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.