Transcription
We're starting to see the cracks. House prices are dropping. Something I predicted in a previous video at the start of this year would happen over Q2 and Q3 of this year of 2025. So, if you watch this channel, none of this should be a surprise to you. Asking prices falling, supply rising, sellers forced to slash prices. And the big, big question is, could the UK housing market actually collapse?
Because when property markets collapse, it's never just about house prices. It impacts jobs, it impacts families, it impacts pensions, and it impacts the entire economy. And if you're wondering why you should listen to me, I've spent the last 13 years running two national property businesses that I founded back in 2013. British Home Buyers, a UK-wide home buying company. British Home Sellers and nationwide estate agency. And across those businesses, they've been involved in over 14,000 transactions worth over £5 billion.
And today's video, I want to walk you through how property markets collapse, where we sit right now in the UK, and importantly, who wins, who loses, and how people have navigated these crashes in the past. Because once you understand how these cycles play out, you can make better decisions about your life. So, let's get into it.
So, how do property collapses usually start? So, let's be clear. Most property crashes don't begin with houses. They start with liquidity squeezing, affordability dropping, buyer volumes dropping, or supply increasing by too much. So, let's look at the state of liquidity right now in the market. Well, mortgage approvals for house purchases has decreased a third consecutive month. This is clearly affecting affordability because why else would the Financial Conduct Authority, there to ensure the financial markets are fair, transparent, and competitive and that consumers like you and me are protected, have for most of the year been reminding lenders of the flexibility in its rules? Specifically, flexibility around lenders' stress tests, the very, very thing brought in over the last financial crash of '07-'08 to avoid future property crashes.
So, is it surprising to you that now you're probably noticing more 90% mortgage deals, even 100% mortgage deals out there in the market? They're trying to keep things afloat. Why? Because of buyers dropping away and the supply of property flooding the market right now. And that is a problem because when that happens, sellers start cutting prices to attract what buyers remain, which is what we're seeing. This is exactly what is starting to happen right now with more properties on the market than have been for over a decade and asking prices beginning to drop.
So, let's recap that for a second. Liquidity is being squeezed, which is why mortgage approvals have been dropping. They've dropped a third month in a row. Affordability drops, which is why the FCA is trying to nudge lenders to relax the rules. You're getting 90%, 100% mortgages because they can see what you and I see: that there is more property on the market than there has been for over a decade and asking prices are beginning to drop. This is the first wrinkle in the market, that first crack. And this matters because it creates a negative feedback loop for the market. Prices dropping leads to less confidence, which leads to fewer buyers as people think prices might keep dropping and so they just wait, which leads to more price drops. We're seeing small echoes of this already in the market. In June, UK asking prices fell 0.3%, which is really unusual for this time of year. Buyer demand is still 3% higher, which looks great compared to last year. But new property listings are up 11%. So, more supply plus fragile affordability equals growing price pressure, especially in higher-priced areas. So, for instance, the Southeast has seen a 6% drop over the last year, 1% in the last month. The Southwest is a 0.7% drop over the last year, 1.6% in the last month. And London has stayed flat with a 0.9% drop in the last month. And remember, these are asking prices, not sales prices. And, and in reality, most right now, the vast majority of properties are selling below asking price. So, this is probably going to be worse.
And these, of course, are nominal value changes as well. So, if you account for inflation, it is clearly far worse than the 1 to 2% price drops we're seeing, especially if you look at not CPI inflation, but owner occupiers' housing costs, that red line on that graph, which is over 7% at the moment. Housing inflation is over 7% and no one really talks about it. And right this second, we're in a situation where supply is jumping as sellers rush to sell before things worsen.
So, why are UK house prices so vulnerable at the moment? What makes property crashes especially painful is this simple problem: property prices have grown way ahead of wages for years, especially in England, London, and surrounding areas mainly. Average UK house prices are up over 215% since the year 2000. But wages haven't kept up. So, instead, mortgage terms have extended, interest rates have dropped, leverage has increased, the system stretched the elastic band, but eventually, you hit the limits of how far you can stretch it. And now we're at that inflection point, especially now with higher interest rates, affordability being squeezed even further, and the buyer psychology changing.
So, let's talk about the self-feeding collapse cycle because once confidence cracks, the collapse feeds on itself. So, first-time buyers wait for better deals. Landlords exit. Prices fall. Banks tighten lending criteria. You then get more forced sales or repossessions hitting the market. Prices then fall again. This is exactly what we saw during the 2008 financial crash.
So, how bad does this all get? Well, let's zoom out with a few historic parallels. So, in '08, UK housing crashed. Prices fell 20%, peak to trough. The US subprime crisis, many regions fell 30 to 40%. Greece's crash post-2008: GDP fell 30%, house prices fell 40%. Youth unemployment hit 60%. In the '90s, the UK crash. In the UK, house prices dropped 20% but took years to recover back to pre-crash levels.
So, who are the winners versus losers? Because property collapses are brutal, but not everyone loses. So, if you're highly leveraged and need to sell, you're exposed. If you're a first-time buyer waiting, you might find rare opportunities. Cash buyers will become king. Institutional investors, well, they're going to scoop up assets cheaply, further widening inequality. You don't have to look for long to realize funds like BlackRock and Lloyds have moved into UK property markets, uh, buying up billions. And, and why? Because they see what we see.
So, are we collapsing right now? I don't think we're in a full-blown property collapse. And I'm pretty sure government, as we saw over COVID, will step in to try and artificially nudge things in the right direction. You know, house prices drop a bit too much, no problem. Let's decrease stamp duty a little bit. House prices increase too much, no problem. Let's increase stamp duty a little bit. Which, in reality, this all buys time whilst pushing the problem further down the road. I'm fairly sure their focus is for house prices to stay behind inflation for as long as possible. So, you keep the headlines of house prices growing 1, 2, 3% a year, but in reality, when you adjust for inflation, they're flat, allowing the property market to slowly become more and more affordable as they keep focusing on on this target of pumping new new more more new homes into the market. Um, which, by the way, this isn't going to fix the market over the next four or five years. We have to sustain this sort of process for 20, 30 years to correct the the mistakes of the past.
You can see from this graph that since average house prices dropped 16% adjusted for inflation over 2022-2023, house prices adjusted for inflation have stayed very flat since, which I think is the target. This data shows a more controlled squeeze. You know, sellers adjusting prices to secure buyers, buyers negotiating hard because there's so much supply. Yeah, interest rates are high but not yet unaffordable for enough people. You know, remember, 52% of all home movers right now have household incomes of over £50,000 or more. 25% of home movers are pensioners. So, banks are still lending carefully. The key risks lie ahead. So, if unemployment rises significantly, the collapse risk grows. And as you can see, unemployment has been growing, which is putting more stress on things. Uh, because most housing, uh, housing crashes are triggered not by house prices, but actually by job losses and forced selling.
So, how can you prepare? Well, if you're buying, don't overstretch yourself. Focus on long-term value, not short-term hype. If you're investing, cash flow matters more than ever, more than capital growth right now. If you're selling, price realistically, act decisively. And if you're waiting, build liquidity because the best opportunities come after corrections.
So, my final thoughts on this are: property cycles are brutal, but they're cycles. Every major crash creates long-term winners and losers. You know, the UK recovered from the 1990s crash. The world recovered from the '08 crash. Even Germany and Japan rebuilt after total collapse, uh, post-World War II. The key isn't predicting the exact month or year these crashes happen. It's understanding where you sit in the cycle and making sure you're not overexposed when that tide turns, cuz it will at some point.
What do you think about all this? Are we heading for a full-blown collapse or a slow correction, which is what I think? Drop your thoughts in the comments. I reply to everyone. I love your comments. And if you found this helpful, hit like and subscribe. It really helps more people see this content.