After decades of boom years, the UK property market has started to collapse. Government subsidies, low interest rates, and a shortage of available homes, combined with oversupply, have fueled the runaway prices of real estate for nearly a decade. But times have changed recently. Analysts say a large-scale collapse of property prices could already be underway, with sellers cutting their price tags and buyers waiting on the sidelines. This shift is a big about-face from one of the world’s most resilient housing markets.

Mortgage Rates

In an effort to combat chronic inflation, the Bank of England has raised interest rates fourteen times since 2021. Mortgage prices have risen to a level not seen since before the 2008 financial crisis, a direct consequence of this. Five-year mortgages are little relief, and two-year fixed mortgage prices are already standing at 6%. Many buyers have been forced out of the market due to the rise in borrowing costs. Previously able to afford a £300,000 mortgage, households now qualify for much less, which reduces their budgets and forces them to reevaluate or forego purchases entirely.

Lenders

Mortgage lenders have tightened their lending standards in response to market instability. Banks have become more scrutinising of borrowers’ credit, raised deposit levels, and lowered loan-to-income ratios. They have also withdrawn a large number of fixed-rate offerings on short notice, leaving purchasers scrambling to find funding. Meanwhile, an increasing number of homeowners are struggling to refinance their existing loans, especially those with fixed terms that are due to conclude at low interest rates. The risk of mortgage defaults and repossessions has increased, further endangering price stability, as some people’s monthly repayments have doubled.

Sellers

In an effort to attract hesitant buyers, homeowners in the UK have begun to reduce their prices drastically. More than one-third of existing listings have had their prices reduced, according to property portals such as Rightmove and Zoopla. Sellers are accepting offers that are 5–10% less than the asking price to finalise deals, real estate agents in London, Manchester, and Birmingham said. Some of the same sellers who, during the height of the COVID-19 pandemic, bought at prices higher than today are now subject to the risk of losing money or incurring negative equity. Due to the surge in sales ahead of the further crash, there is an oversupply of discount homes in this market as well.

Uncertainty for Buyers

First-time buyers, who previously led the lower end of the market, are now under the most pressure. Prospective buyers have been driven to the sidelines by high mortgage rates, expensive rents, and rampant cost-of-living increases. Entry-level buyers in Leeds, Bristol, and Nottingham have delayed their purchases, awaiting more substantial price cuts or a decline in mortgage rates. The market as a whole slows down in the absence of this vital layer of demand, which has a ripple effect on sellers farther up the supply chain.

Buy-to-Let Investors

Additionally, buy-to-let landlords have started to leave the market. New tax laws have severely impacted profitability, more stringent energy-efficiency requirements, and increased mortgage rates. Today, many landlords find that their rental income is not sufficient to cover their mortgage payments. They have started selling out instead of running at a loss. Especially in cities, this influx of flights has overstocked the market with apartments and smaller houses, further tipping the supply-demand ratio and driving down prices.

Construction Process Slows

Today, after having been optimistic about endless growth, homebuilders are facing declining consumer demand. In the UK, developers have begun suspending or cancelling projects. Persimmon, Barratt Developments, and Taylor Wimpey have experienced lower home completions and significant slowdowns in new sales. The building industry, which is heavily reliant on housing activity, has started to contract. Demand for materials is falling, according to suppliers, and job losses have escalated. Developers are now waiting for more distinct indications of a market recovery because they are hesitant to build homes they cannot sell.

Economic Uncertainty

The nation is still experiencing economic turmoil. The prospect of a recession, geopolitical unrest, and a turbulent labour market has shattered consumer confidence. These days, people think twice before making large investments. Housing confidence has hit a ten-year low, according to national surveys. Sellers expect to have to accept deep discounts, while buyers fear their properties will depreciate almost immediately after buying. Sales have hit a standstill, and this rampant uncertainty has fueled the decline.