Recession – what does this mean for the UK housing market?

With the recent announcement from the Bank of England that the UK is heading towards a recession, there has been much speculation on what this will mean for the property market and what affect it will have on the continuous rise of house prices across the UK. Britain last entered into a recession in 2020 due to the covid crisis, and this had an extremely positive affect on the housing market economy, with house prices climbing a total of 11.8% in the 12 months before July. The month of July saw prices drop for the first time in more than a year, and with the Bank of England raising the interest rates to 1.75%, many professionals are now discussing how the decrease is demand will have a knock-on effect to the amount of supply.

The worsening economic outlook and the rising interest rates “will increase pressure on households already struggling with the cost of living, as it makes mortgages and loans more expensive, and this will almost certainly dampen sentiment in the house market” states the Head of Knight Frank. With many hopeful homebuyers are also in risk of losing their jobs due to a recession, Rightmove has calculated that first-time homebuyers would see their monthly mortgage payments climb to an average of 40% of their gross salary. With the potential loss of income from losing a job, and the inability to then make mortgage payments due to this, we could see a record number of repossessions. Although this may the case, there are many options for protection from repossession, which industry professionals are urging borrowers to explore and act upon.

Many believe property prices falling could potentially be good news for new homebuyers, but for existing homeowners and buyers, there is the possibility their homes may decrease in value, sometimes resulting in the valuation being lower than the amount borrowed on their mortgage. This which will then place them into negative equity, resulting in difficulty selling, which will in turn decrease the amount of demand to buy. For new homebuyers, although experts believe they should celebrate with caution, the outlook looks positive and hopeful that they may finally be able to afford to purchase properties within their price range and be onto the property ladder.

Overall, if the UK are to enter into a recession, there will be evident effects on the housing market, but it is hard to predict whether it will be a negative or positive impact. Tell tale signs, such as the decrease in house prices last month, for the first time in a year, could be viewed as negative, but for some experts, they are able to see optimism for first-time buyers and the “renter generation”. It would lead to smaller deposits being required and lower amounts being borrowed. But the rise in inflation will put pressure on those saving for deposits, to prioritise their income. The affects could go either way for the industry, but the main advice industry professionals are expressing is to be prepared and be fully understanding of your options as a homeowner or a potential homebuyer.

If you need to sell your home quickly, UK Homebuyers Ltd can give you an offer, no matter what the condition or location. Our customer service line is open 24/7, just call 0333 255 0575 for a quick offer or fill in our online form to obtain your free no obligation cash offer.