Is Wembley Heading Towards a House Price Crash?

The Wembley property market has been booming since late Spring 2020. Yet if history has taught us anything, a house price crash is likely to follow, or is it?

Is Wembley Heading Towards a House Price Crash?
Wembley house prices dropped by 6% last month, according to the Land Registry. This means the annual rate of house price growth in Wembley has eased to 1.6%, quite a distance from the 19.2% yearly rate experienced only a few months ago. Don't get me wrong, this is still decent growth in local house prices in anyone's eyes, yet the 'pedal to the metal' growth rates seen only a few months ago do appear to be easing.
 
Looking at the national figures, many people were concerned the UK property market was overheating as spring saw annual growth of 9.9%, the highest rate of house price growth documented since June 2007 (when national house prices were rising by 10.8% pa). It was only a matter of a few months later the Credit Crunch hit, and the value of the average UK home plummeted from £190,032 to £154,452 in 18 months, a drop of 18.7%.
 
Government economic measures such as the Furlough Scheme and the Stamp Duty Holiday have so far shielded the Wembley property market from the worst economic recession since 1709.
 
So, the question is, can this growth in Wembley house prices continue, or is this the start of a house price crash?
 
One thing is for sure, looking at the number of For Sale boards going up and turning to sold just as quick, shows this market is not maintainable for the long term. Most of the Wembley people looking to move home have brought forward their home-moves from 2022/3 to this year because of the Stamp Duty Holiday and the lifestyle choice of wanting a bigger garden/office space at home.
 
Nonetheless, the doom-mongers in the press say there will be a second wave of house sellers that will flood the Wembley property market in the autumn and winter when furlough ends. They believe many of the 3.4m people still on furlough will be made redundant when furlough finishes at the end of September 2021 forcing them to move home.
 
This was the catalyst for the house price slump in 2008/9 mentioned above, when many Wembley homeowners dumped their homes onto the Wembley housing market.
 
After all, many Wembley homeowners lost their jobs and had mortgages paying 6% to 7% in interest payments.
 
However, the devil is always in the detail. The industry groups with the highest take-up rates of furlough are the hospitality (public houses) sector, where 70% of staff are furloughed. 65% of hotel staff are furloughed, and 44% people in the creative arts and entertainment industry are furloughed. Most employees in these sectors are in their 20's and early 30's and are tenants, not homeowners. This is going to be more of an issue for landlords than homeowners.
 
And of those furloughed homeowners who do unfortunately get made redundant later in the year, looking at the last four most recent house price crashes, buyers were wrestling with significant declines in mortgage affordability. For example, back in 1988, average mortgage rates were 13.9% before that crash and in 2007 (the Credit Crunch crash) 6.5%. Whilst today, they are under 2%, meaning the mortgages are a lot more affordable, and most Wembley homeowners who get made redundant will be able to ride out the storm better.
 
But surely, if Wembley house prices are rising, won’t Wembley homes become unaffordable?
 
Well, with low-interest rates, this means Wembley homes are still relatively affordable. In 1989, the house price to earnings ratio was 5.4 to 1 (i.e. the average house was 5.4 times the average UK salary), whilst today that stands at 8.8 to 1. It’s no wonder some people are concerned there will be a house price crash (as there was in 2008 when that ratio hit 7.5 to 1).
 
However, it doesn't matter what the house price to earnings ratio is .... it is what percentage of your income is required to pay your mortgage.
 
In 1989, 74.6% of your income was required to service an 80% loan to value mortgage on an average UK home (i.e. you borrowed 80% of the value of your house on a mortgage). In the 1990s that percentage dropped yet rose steadily over the next decade and a half, so by the time we got to 2008, that was an equally eye-watering figure of 61.6% of your income to service an 80% mortgage.
 
Today, it's only 35.9% of your income to service an 80% mortgage because of low interest rates.
 
So, if the issue is not the affordability of houses, what is the problem for Wembley homeowners?
 
Interest rates!
 
Bank of England interest rates will affect what people pay on their mortgage (higher interest rates normally mean higher mortgage payments). Interest rates are used to reduce inflation, so if inflation rises, interest rates also rise to bring inflation back under control.
 
UK inflation has just gone through the 2% barrier, and I believe by the end of this year or early next, it will touch 4% or 5%. In normal circumstances, this would trigger the Government (or now the Bank of England) to raise interest rates. Yet, we had a similar scenario in the late 1980s/early 1990s with a spike in inflation to 8.5% due to a shortage of raw materials and labour, but this was soon sorted out, and inflation dropped quite quickly thereafter.
 
In the coming year, a shortage of raw materials might be an issue. If there is a shortage of raw materials (supply problems are being found in key items such as timber, concrete, aggregates and steel), this will fuel construction and manufacturing costs upwards.
 
Next, will there be a shortage of labour? Some say it won’t be an issue (as unemployment will be higher), yet there are certain sectors of the economy that have an imbalance of trained staff of specialised jobs or people not wanting work in that type of job in the first place.
 
For example, many hospitality and dining establishments are reporting a shortage of staff because they were often filled with hard-working European migrants. I have read reports of London restaurants advertising for chefs and waiting staff, who would have received 1000+ enquiries for such jobs pre-pandemic to only be receiving applications that could be counted on two hands this summer. The hospitality and dining sector was hit harder than most, having to stop trading during the three lockdowns and working under firm restrictions. This led to the majority of staff being placed on furlough (as mentioned above, 7 in 10 are still on furlough), which has prompted some to ride out the pandemic in their own Country.  
 
The question is – will they return? If not, to entice them back restaurants will have to increase the wages they pay to attract the staff, which in turn will mean they will have to put their prices up (i.e. inflation). If businesses have to put their wages up and the cost of raw materials continues to rise, prices for everything will rise, and at this point, higher interest rates will kick in.
 
But how will increased interest rates affect the Wembley property market?
 
Thankfully, 91% of all new mortgages being written are fixed interest rate mortgages and 78% of all existing UK mortgages are fixed-rate (compared to 32.8% in the credit crunch) ... meaning we won’t have so many houses being dumped on the housing market like we did in the Credit Crunch, because on a fixed rate mortgage, if interest rates rise - mortgages don’t follow suit.
 
And that’s the key … unemployment combined with high-interest rates caused many Wembley homeowners to put their property onto the market in 2008/9. Tied in with curtailed demand for property, because it was really difficult to get a mortgage (that’s why it was called the credit crunch) ... we had an oversupply and subdued demand of Wembley homes - causing house prices to drop by 16% to 19% depending on what type of property you owned.
 
So, a good bellwether and indicator on what will (or will not) happen to Wembley property prices is the number of properties for sale at any one time.
 
There are 497 properties available to buy in Wembley today, slightly higher when compared to the 14-year average of 402 properties for sale in the area, whilst at the height of the Credit Crunch, there were 718 properties for sale at one point in Wembley.
 
 
As we look to the future, if you want a crystal ball of what will happen to the Wembley property market ... you won’t go that far wrong by getting yourself on the property portals and seeing how many properties are for sale.
 
These are my thoughts ... what are yours?

Get in touch with us

First Name*
Last Name*
Your Email Address*
Mobile Phone*
Are you looking to*
Please enter message here*
Please confirm that it is okay for us to contact you about this information as well as products and services. (You will always be given the right to unsubscribe at any point in the future)*

Register for Property Alerts

Ever missed out on the perfect property just because you heard about it too late, or the Estate Agent never told you about it as it was slightly outside of your criteria? Never miss out again by using our “Heads Up Property Alerts”.

Latest Properties

2 bedroom apartment boasting a private roof terrace with stunning panoramic views on Popes

Guide Price

£590,000

2 Beds2 Baths1 Reception
Abelard Place Popes Lane South Ealing London W5 4BZ

Striking and Contemporary 2 Bedroom Apartment on Popes Lane in South Ealing

Built in 2015 in a striking small luxury mixed development of 3 houses and 2 apartments

Private roof terrace with motorised roof access providing 360 degree views of West London

A superb rental investment or a fantastic first time buyers option. This property can be both!

Guide Price

£350,000

3 Beds1 Bath1 Reception
Poplar Grove Wembley Middlesex HA9 9DB

Top Floor Flat

3 Double Bedrooms

Spacious Reception Room

Spacious 3 Bedroom House with extended family home and off-street parking in Monks Park, Wembley.

Guide Price

£590,000

3 Beds2 Baths2 Receptions
monks park, wembley

three bedroom semi detached house

extended family home

close to oakington manor primary school

Meet Abigail

  Hello, my name is Abigail, and I am the Grey in Grey & Co. I started working here in 2002 as a Junior Negotiator and have worked my way up the ranks since then. I took over running the company in 2014 and have been enjoying the roller coaster that is leadership ever since.   During my 20 plus years at Grey & Co I have dealt with the sale of over £100,000,000 worth of property and overseen the management of assets worth £250,000,000 for clients around the world.   I also had the pleasure of working with my father, the founder of Grey & Co, for 15 years before he sadly passed away and from him, I learnt the work hard ethic and our values today are still the ones that he founded the company on all those years ago.   Be Remarkable, Be Passionate, Be Humble and Be Better.   As a community centric boutique family agency, you couldn’t find a better partner to take with you on your property journey.

Meet All The Team

Should You Move or Improve? Which Option Offers the Best Value in Wembley?

With rising labour and materials costs, is it now more cost-effective to move rather than renovate?

Latest News on the Renters’ Rights Bill

The Renters’ Rights Bill has just passed its latest stage in the House of Commons. Here, we’ll look at what happened and at what it could mean for landlords, tenants and anyone considering selling their rental property investments.

Three Ways Trump Could Influence the Wembley Property Market

Next Monday (January 20th), Donald Trump will be inaugurated as President of the United States of America for the second time. And whether you love or loathe him, there's no escaping from the fact that he's one of the world's most powerful person (again).