What does recession mean for UK property?

26 Aug 2022

Britain is heading into recession before the end of 2022, the Bank of England has warned. Many experts, analysts and homeowners are now asking, ‘how will the housing market be affected?’ The pandemic helped hike property prices across the UK as working from home became the new normal and prompted both house movers and buyers in a ‘race for space.’ The country’s property sector has been red hot ever since then as people taking out a mortgage sought to benefit from low interest rates and a stamp duty holiday. However, commentators believe that a recession could finally take the heat out.

House prices
Recent figures from the Halifax reveal that house prices rose 11.8% in the year to July. However, they dropped by 0.1% month-on-month in July - and that was before the central bank hiked interest rates to 1.75% in an effort to combat surging inflation. “While we shouldn’t read too much into any single month, especially as the fall is only fractional, a slowdown in annual house price growth has been expected for some time,” said Halifax managing director Russell Galley. Higher interest rates will impact mortgages. Colby Short of Get Agent says: “When interest rates rise, naturally, mortgage rates do too. With the prospect of taking on a new home loan becoming more undesirable, we will see a negative impact on the number of properties available for anyone hoping to sell, as well as those seeking to buy for the first time.” He added: “Current mortgage-holders will also feel the effects, with repayments set to rise – variable rates will be pretty immediate, of course, but for those holding fixed rates as well, when those inevitably come up for renewal in the coming months and years.” Meanwhile others say the fallout of a recession is marginal. David Jabbari, CEO of nationwide conveyancers Muve, said unemployment, which is people’s main concern during an economic downturn, would “moderate the downside.” He said: “Traditionally, a recession will see more people out of work, fewer mortgage approvals and thus less demand from buyers, culminating in lower house prices. However, what has been remarkable about the UK economy over the past 10 years is that whatever has been thrown at it – including the pandemic we saw in 2020 and the high inflation we see today - unemployment has remained very low.” He continued: “This is a positive factor that will moderate the downside to house prices and we would not expect to see a dramatic decline as we have seen in previous recessions.” Whatever the recession brings, UK property has always bounced back in value. As such, those looking to invest will be now employing the mantra ‘buy the dip’ to build their long-term wealth.