Property Rant 14/12/2022 – 10 biggest property news stories

Brett Alegre-wood
December 14, 2022

Here’s the 10 biggest news stories about UK Property and the UK Economy today.

1) Economists predicting a housing market boom and crash in the UK; 
2) Property market downturn with potential for prices to fall by up to 30%; 
3) Increased mortgage delinquency concerns; 
4) House price correction unfolding faster than anticipated; 
5) Rising interest rates and soaring inflation weighing on the global housing market; 
6) Large fall in new buyer inquiries in October; 
7) Rising unemployment risks adding to pressure on the UK; 
8) UK economy contracting in the third quarter of 2022; 
9) Danger to housing markets if unemployment rises sharply; 
10) Limited risk of a shock reverberating across the wider financial market.

Economists are predicting that soaring interest rates and falling prices will mark the end of the U.K.’s 13-year housing market boom, potentially leading to a house price crash. 

Market watchers are warning of a collapse in prices of up to 30%, with new homebuyer enquiries plunging in October to their lowest level since the 2008 financial crash. 

The MSCI UK Quarterly Property Index slumped 4.3% in the three months to September, marking the sector's worst performance since 2009. Prices have already begun falling in some places, according to property search site Rightmove, which said sellers cut prices by 1.1% in October. Rising interest rates, soaring inflation and the economic shock from Russia's war in Ukraine have weighed heavy on the global housing market.

In the U.K., the unique economic landscape puts it at higher risk of mortgage delinquencies, according to Goldman Sachs. Factors at play include Britain's worsening economic picture, the sensitivity of default rates to downturns, and the shorter duration of U.K. mortgages relative to euro zone and U.S. peers. The U.K. economy contracted 0.2% in the third quarter of 2022, leading to the Bank of England warning that the U.K. now faces its longest recession since records began a century ago. A further consecutive quarter of decline in the three months to December would indicate that the U.K. is in a technical recession.

If unemployment were to rise sharply, the dangers to housing markets would be amplified considerably, according to Oxford Economics. Goldman Sachs’ analysis showed that for every one percentage point increase in the U.K. unemployment rate, mortgage delinquency tends to rise by over 20 basis points after one year. The government's upcoming fiscal statement Thursday is expected to unveil £60 billion ($69 billion) of tax hikes and spending cuts set to weigh heavy on growth.

Despite the potential for a housing market crash, economists say the risks of a shock reverberating across the wider financial market are minimal. Greater regulation and adequate capitalization of the banking sector following the financial crisis have limited exposure to risky mortgages. 

Meanwhile, the majority of housing debt sits with households with reasonable savings buffers. This correction will be nothing like the utter collapse of property prices during the Great Recession, when some housing markets experienced a 50% drop in prices.

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The Bank of England is doubling down on inflation-busting rate hikes to counter the chaotic mini-budget. This has led to some estimates predicting a 10% drop in UK property prices by the second quarter of 2023. However, some lenders are less sanguine, with one of the U.K.'s largest mortgage providers, Nationwide, saying house prices could collapse by up to 30% in its worst-case scenario.

The U.K.’s unique economic landscape puts it at higher risk of mortgage delinquencies with factors at play including Britain's worsening economic picture, the sensitivity of default rates to downturns, and the shorter duration of U.K. mortgages relative to euro zone and U.S. peers. The U.K. economy contracted 0.2% in the third quarter of 2022. HSBC warned earlier this month that the U.K. now faces its longest recession since records began a century ago, with the downturn expected to last well into 2024.

The Bank of England has insisted that it will continue to raise rates, albeit to a potentially lower peak. This, combined with rising unemployment risks, could create a wave of forced sales and foreclosures. For every one percentage point increase in the U.K. unemployment rate, mortgage delinquency tends to rise by over 20 basis points after one year.

Fortunately, much of the outlook will hinge on the government's recent fiscal statement, when Finance Minister Jeremy Hunt is expected to unveil £60 billion ($69 billion) of tax hikes and spending cuts. Greater regulation and adequate capitalisation of the banking sector following the financial crisis have limited exposure to risky mortgages. Meanwhile, the majority of housing debt sits with households with reasonable savings buffers, helping to limit the risks of a shock reverberating across the wider financial market.

Cheers,
Virtual Brett

*** This article was written by Virtual Brett using our AI Writer and then edited by the team. Some views expressed may not be agreed by the team.


Tags

Property News, Property Rant, UK Property


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