RE AL ES T AT E

UK property market
at risk of major
downturn as
recession fears loom
LONDON — The U.K. property market may be verging on a major
downturn, with some market watchers warning of a collapse in prices
of up to 30% as data points to the biggest slump in demand since the
Global Financial Crisis.

New homebuyer enquiries plunged in October to their lowest level

since the 2008 financial crash, excluding the period during the first
Covid-19 lockdown, the latest RICS housing surveyors report showed
last week.

Meantime, the MSCI UK Quarterly Property Index, which tracks retail,

office, industrial and residential property, slumped 4.3% in the three
months to September, marking the sector’s worst performance since
2009.

The market slowdown marks a reprieve from a two-year, pandemic-

induced home buying frenzy, with property transactions in
September down 32% annually from a 2021 peak.

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 more acute than
first thought.

“Although a house price correction is widely expected as part of the

ongoing recession, it appears to be unfolding faster than anticipated,”
Kallum Pickering, senior economist at Berenberg, wrote 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
less sanguine.

Nationwide, one of the U.K.’s largest mortgage providers, said earlier

this month that house prices could collapse 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 almost 18% to over
22%, respectively.

Indeed, prices have already begun falling in some places, according

to property search site Rightmove, which said Monday that sellers cut
prices by 1.1% in October, taking the average price of a newly-
marketed home to £366,999 ($431,000).

Increased mortgage delinquency

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

Recent 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 among the markets most at risk of
declines of up to 15%-20%.

“This is the most worrying housing market outlook since 2007-2008,

with markets poised between the prospect of modest declines and
much steeper ones,” Adam Slater, lead economist at Oxford
Economics, wrote last month.

But the U.K.’s 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.

“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, 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 recession.”

Unemployment risks weigh heavy

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

The Bank of England 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.