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The UK housing market: a comprehensive review of a potential crash

UK housing market crash

Is the UK housing market about to crash?

Our fear-inducing national media is again headlining an imminent crash in the UK housing market after Halifax reported the first year-on-year fall in house prices since 2012!

“Average house price down £7,000 from its peak, as economists warn of a 25% fall if rates stick at 6%!”

Daily Mail 22/6/2023

However, before jumping to any conclusions, it is crucial to examine the data objectively to gain a clearer understanding of the situation.

Examining house price trends

Recent data from Halifax reveals a year-on-year fall of -1% in house prices, marking the first decline since 2012. However, it's important to note that the average house price for May 2023 still stands at £286,532, significantly higher than two years ago (+£25,000) and £5,000 higher than the end of 2022. While a larger year-on-year fall is anticipated next month due to the peak of £294,845 recorded in June 2022, the market has seen relative stability over the past couple of years.

UK average house price.

Impact of interest rates

To compound our misery, the media has also drawn attention to the Bank of England's losing battle against inflation and the subsequent rise in mortgages. This gives the media yet another chance to induce fear of a UK house price crash! Bring on the crystal ball!

“With inflation remaining stubbornly high and fixed-rate mortgages rising again across the market, this will inevitably impact confidence in the housing market as both buyers and sellers adjust their expectations…therefore further downward pressure on housing prices is expected”

Inflation stuck at 8.7% in May which was not supposed to happen. Analysts anticipated the Bank of England would need to raise interest rates higher than previously thought and keep them higher for longer to bring inflation back down, and indeed the Bank of England then made a move that was not anticipated; interest rates were raised by half a percent to a new base rate of 5%. Due to this move, lenders started pulling mortgages and re-pricing them even higher:

Mortgage rates rise.

Effects on mortgage holders

Bottom line, this means that anyone on a variable, tracker, or expiring fixed-rate mortgage will undoubtedly face higher interest payments due to the recent rate hike, and because rates are now expected to be higher for longer, more households are likely to be pulled into this and forced to refinance at a higher rate.

Read More: Pay mortgage off early or invest

Understanding the market dynamics

With more than 2.4 million fixed-rate mortgages due to finish between now and the end of 2024, many households may be compelled to refinance at higher rates. Make no mistake, this is not good, but it is less dramatic than it first sounds.

For a start, only about a third of properties in the UK have mortgages, and even among buy-to-let properties, only around half are mortgaged. Furthermore, not all properties coming off fixed rates will have significant mortgages or high loan-to-values. The average outstanding mortgage in the UK stands at £127,000, indicating that not all homeowners will be heavily affected by the interest rate changes.

Impact on each generation

This actually suggests that raising interest rates will not be effective in combating inflation because there is a large asset-rich section of the population with no mortgages that are doing just fine. Squeezing people who are not in that position will not help, but it is the only tool the Bank of England has.

So, mostly older people who own their own property, have an inflation-linked pension, and have money in the bank, will not be affected by the interest rate squeeze. But, the over-mortgaged generation in their 30’s and 40’s who have also bought over-priced houses, potentially with children still living at home, and with already tight budgets, are going to be hit hard.

Read More: Buying a home with parents help

Effect of new support measures for mortgage holders

The obvious fear is that if people can not afford to pay their new higher mortgage rates they will lose their homes and this will cause a housing price crash. The good news is that social and political pressure on the Government has forced them to provide some support to those struggling to pay their mortgages. This is unlikely to be direct financial help because the whole point of raising interest rates is to make people poorer so they stop spending and inflation goes down………?!

But, other measures have been agreed, and hopefully will be put in place, which will stop the potentially large number of repossessions that were seen back in the 1990’s and 2008/9. For those worried about being able to make payments on mortgages, lenders are expected to help out by either offering an increased term to spread out the payment, a temporary shift to just paying the interest only on the mortgage, or providing a payment holiday.

Finally for people who are at risk of losing their home, in that extreme situation, the lenders have agreed there will be a minimum 12-month period before there is a repossession without consent.

Example of how these support measures will work

A house buyer taking out a 2-year fixed repayment mortgage* in June 2021 paid an average rate of 2.5% compared to an average rate today of 6%. On a £200,000 mortgage, this is £900 a month compared to £1300 a month, or an extra £400 to find every month.

(*A repayment mortgage means you pay back interest and some of the loan each month until the end of the mortgage term when all the loan will have been repaid).

This is on a typical 25-year term repayment mortgage. If the term is increased to 30 years, then the monthly payment goes from £1300 a month, down to £1200; a 35-year term reduces the monthly payment to £1140 a month. By increasing the term of the mortgage, the monthly amount is reduced, but it means more will be paid in interest due to the longer term. Taking a payment holiday will have the same effect.

The other option which may be available is to move to an interest-only mortgage ie the monthly payments only cover repayment of the interest owed and the £200,000 borrowed has to be repaid at the end of the term or when the property is sold. By doing this, the monthly payment goes down to £1000.

Hopefully, these measures will offer comfort to those who are anxious about high-interest rates and support for those who do get into difficulty.

Read More: Is it better to rent or buy a house?


BAD: The Office for Budget Responsibility (OBR) recently published a forecast predicting house prices to fall by 10% in 2024 when compared with the high in 2022. It stated that low consumer confidence, the squeeze on real incomes due to the cost of living crisis and mortgage rate rises, would be the factors contributing to further falls in house prices.

Capital Economics predicts that if mortgage rates stick at their current 6% level for several years, a 25% drop in house prices would be likely.

GOOD: The Guild of Property Professionals says the £7,000 fall in the average value of a house since last September may worry homeowners, but prices are still far above pre-pandemic levels. There will always be a demand for quality housing, and this will keep prices buoyant and help guide the property industry through the storm. As inflation eases off in the second half of the year, so too will interest rates, and confidence should return to the market, as well as the availability of competitive mortgages.

While concerns about a potential housing market crash persist, an analysis of recent trends reveals a more balanced perspective. The year-on-year decline in house prices should be seen in the context of overall market stability. The rise in interest rates may pose challenges, especially for certain demographic groups, but it is crucial to consider the diverse dynamics of the market. Where’s my crystal ball…..!?

The 18 year property cycle theory: A definitive forecast for 2026?

The 18-year property cycle theory, developed by Fred Harrison, Executive Director of the Land Research Trust, has proven to be a remarkable tool for predicting major market events. With a track record of accurately forecasting the property crashes of 1990 and 2008, Harrison now predicts the UK will suffer its next major house price crash in 2026.

In his groundbreaking book, 'The Power in the Land' (1983), Harrison correctly predicted the peak in property prices in 1989, as well as the subsequent recession. Building on this success, his book 'Boom Bust: House Prices, Banking and the Depression of 2010' (2005), accurately forecasted the 2007 peak in house prices and the ensuing depression.

In his latest publication, 'We Are Rent,' Harrison boldly predicts that house prices will next peak in 2026, followed by a recession that will surpass the events of 2008.

According to Harrison, the market follows a specific pattern. After a crash, it takes about four years for the market to regain momentum and begin its upward trajectory. This is followed by six or seven years of moderate growth in the recovery phase, followed by a mid-cycle dip - a short downturn lasting one or two years. Finally, the market enters the boom phase, lasting another six or seven years, during which prices surge to unprecedented levels.

18 year property cycle.   www.gradragstoriches

Causes of house price rises

Harrison identifies the finite supply of land as the underlying force driving the rise in property prices. As populations and economies grow, the demand for housing increases, forcing prices up. Limited land availability exacerbates this trend, prompting banks to lend more against escalating asset values, further fueling the upward spiral. Additionally, the perception of property as a safe haven and a reliable investment vehicle amplifies the allure of capital gains, propelling prices even higher.

Causes of house price crashes

When addressing concerns about potential catalysts for a crash such as the Covid pandemic, the war in Ukraine, or the cost of living crisis, Harrison asserts that these factors have not disrupted the structural integrity of the cycle system. However, he acknowledges that an escalation of the war in Ukraine or a Chinese invasion of Taiwan could potentially disrupt the system.

Furthermore, Harrison believes that the current labour shortage and the government elections in 2024 in both the UK and the USA will reinforce the growth of property prices, as no political party, before or after the elections, would allow a house price crash.

“Each 18-year cycle has a mid-cycle downturn, for the current cycle, this was 2019. The overall trend from here is up and up – squeezing purchasing power till the music stops in 2026. House prices will peak in 2026 followed by a recession that will eclipse what happened in 2008. When prices become insupportable, with disposable incomes crushed by mortgage liabilities, people retract on consumption; as the housing market freezes, enterprises find the demand for their goods and services beginning to disappear, and hey presto, we have a recession”.


Fred Harrison's 18-year property cycle theory has proven its predictive power, accurately anticipating past property crashes and recessions. With his latest forecast pointing towards a major house price crash in 2026, based on historical data and underlying economic forces, the question is simple:

Which crystal ball reading will you believe….?

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