When did house prices in Britain last fall?

When did house prices in Britain last fall?

Sarah Beeny’s Tepilo takes a look at Britain’s last property crash and why house prices have been rising at a steady pace ever since.

We’ve become so used to hearing about house prices rising in recent years that it’s hard to imagine a time when this didn’t happen. Even if growth slows slightly month on month or regions witness small price falls, annual price growth is never negative and house prices are never falling drastically.

Instead, all across the country house prices have soared, especially in London and the South East. With demand outstripping supply and, for a number of reasons, buyers finding it difficult to purchase, prices have inevitably gone upwards and homeowners now expect prices to steadily increase as the years go by. It isn’t something to be cheered every time it happens; it is something that most people take for granted. It’s anticipated rather than hoped for. 

But when did house prices in Britain last fall? When was growth last in the red?

While there have been various slowdowns and small house price falls in recent years, growth has generally been steady, with prices rising annually by a few percentage points (or more) in most regions.

The last time house prices fell dramatically was in the aftermath of the global financial crisis in 2007-8, with the credit crunch prompting the collapse and bailout of various UK banks, housebuilders announcing major cutbacks, interest rates cut to record lows of 1.5% and then 1%, the Bank of England funding injections to struggling financial institutions, a surge in mortgage arrears and a large rise in unemployment.

The economic downturn caused by the credit crunch led Britain into one of its longest and deepest recessions, with the economy shrinking, jobs at threat, borrowing at record levels and house prices collapsing.

At the time, a survey carried out by Nationwide found that house prices fell by 15.9% in 2008, with the average house price down by £29,000 on the year before. After hitting a peak in October 2007, prices fell for 14 consecutive months, down by 18% in less than a year and a half. A year of turmoil in the financial markets had major consequences for the economy as a whole, and house prices weren’t shielded from this.

Compare and contrast this to the aftermath of Brexit, where concerns about a massive property crash and house prices falling off a cliff were also aired. It was, in fact, a big part of the official Remain campaign’s approach, to play on people’s fears about a re-run of 2008 and a dramatic fall in the value of their homes. However, none of this came to pass. Despite the vote to leave, house prices stayed strong and resilient in the face of economic and political upheaval.

Consumer confidence, after an initial lull, remained relatively high, while the robustness of the British economy - which grew more than expected in the aftermath of Brexit - helped to keep the housing market steady. Interest rates, which had remained at historic lows since being cut to 0.5% in 2009, were slashed further, to 0.25%, in order to protect and stimulate the economy. While Brexit brought uncertainty, instability and unpredictability, it didn’t cause banks to collapse, chaos in the mortgage market or global recessions, which meant the effect on house prices was never likely to be as drastic.

Most of all, though, the fundamentals of the housing market – demand outstripping supply and tighter criteria on mortgage lending – helped to keep house prices steady in a way that didn’t happen during the last property crash.

Price growth has remained strong and consistent, despite external pressures, since the housing market got back on its feet after the worst of the credit crunch had passed. Since the 2008 crash, property prices have boomed, none more so than in London and the South East, with overseas investment, a lack of supply, increased demand and the capital’s status as one of the world’s leading global cities all contributing towards this.

Although prices have slowed more recently and some suggest may soon flatline, all the indications are that UK house prices will continue to grow for the foreseeable future, albeit more modestly. As we’ve written before, opinions and predictions vary, but most experts predict 2-3% rises in the year ahead and similar projections for 2018 and 2019.

There is, of course, a ceiling – a point where prices can surely go no higher until the government has to step in to cool the market. It’s something that happened in Singapore in 2016, with the government there intervening to slow down soaring property prices. But, while uncertainty is being caused by Brexit and the triggering of Article 50, and there are suggestions that consumer sentiment is weakening, the fundamentals of the market remain the same – and, with that being the case, prices will only be going upwards.

For years, there has been talk of an end to Britain’s property boom or a massive, catastrophic property crash, but these prophesies of doom have yet to come to pass. For now, and it’s been the case for a number of years, property is the safest and most reliable investment class, the most profitable and robust asset a person can possess. It’s why so many people are eager to be homeowners and why the first-time buyer market is so fierce.

Money is no longer tied up in stocks, shares, pensions and savings, but property. It’s become the most popular way to make money, to save for retirement, to help out loved ones and family by releasing equity where required.

Property is seen as a safe bet – solid, stable and reliable. The reaction to Brexit has further proved that, with lessons learned from what happened in 2008.

While it seems inevitable that prices will flatline or fall on an annual basis at some point in the future, there are no signs that this will happen soon. At present, sellers can feel confident about the rising value of their home and, thanks to high demand and a competitive marketplace, achieving a good selling price.

Unless there is another global financial crisis in the offing, we also shouldn’t be fearing a dramatic property crash anytime soon. It will take something of the magnitude of 2008 to knock the housing market off course – on the evidence so far, withdrawing from the EU isn’t in that same league.