Is Labour About to Trigger a House Price Crash?

Transcript

Hi, I’m Ruban Selvanayagam from Property Solvers.

A question has been gaining traction lately — and one that’s starting to worry homeowners, developers, landlords and property traders alike… Is the Labour Government About to Crash the Housing Market?

The answer isn’t simple. It depends on the data, the policy direction, and how confidence reacts when governments tighten rules or shift taxation.

And with Labour’s second Budget landing on the 26th of November, this is the moment when intentions start turning into decisions — and decisions start turning into market behaviour.

In this video, I’ll look at the evidence, the emerging trends and the key considerations for anyone planning to buy or sell in the months ahead.

Let’s dive in…

To understand whether we’re anywhere near a “crash,” let’s start with the numbers as they currently stand…

According to the UK House Price Index published by HM Land Registry for August 2025, average UK house prices were 3% Higher than a year earlier, putting the typical property at around £273,000.

Prices rose 0.8% in August. However, May, June and July all saw noticeably quieter month-on-month movements, so the August rise appears consistent with the usual late-summer seasonal pattern.

In England, prices now average £296,000, up 2.9% annually. The North East continues to lead with an annual rise of 6.6%, followed by the North West at 4.5% and the East Midlands at 4.4%.

At the other end of the scale, London remains the weakest performer, showing a small -0.3% fall year-on-year, with an average value of £566,000.

By property type, detached homes rose 3.2%, semi-detached 4.9%, terraced 3%, while flats and maisonettes slipped 0.8% — reinforcing the post-pandemic preference for space and family housing over smaller urban stock.

Transaction volumes remain steady rather than buoyant. HMRC data shows around 94,000 completed sales in August 2025 — roughly 1.7% higher than a year earlier, but still below long-term norms.

The House Price Index shows new-build prices up 20.5% on the year, but even the report itself warns that new-build figures are currently based on very low transaction volumes.

With only a small number of schemes completing in any given month, a few higher-value developments can skew the averages dramatically. In other words, the number reflects volatility in the data, not a genuine surge in new-build pricing across the market.

Meanwhile, private rents are still climbing faster than sale prices — up roughly 5 to 6% nationally according to ONS data, with London and the North West recording the steepest increases.

Adjusted for inflation, the picture looks weaker. With Consumer Prices Rising by Around 4%  a Year (CPI 3.8 percent; CPIH 4.1% in September 2025), the UK’s 3% Nominal House Price Growth actually represents a Real Terms Decline of About 1%.

In London, where prices are already flat or falling slightly, real values are down closer to 4%. Only a few regions — notably the North East and North West — are still posting inflation-beating gains.

Taken together, the pattern is clear: rents up, transactions steady, supply tight, and real prices slipping.

Not a crash, but a slow erosion — a market under sustained pressure, shaped by limited supply, persistent demand, and growing uncertainty over what government policy will do to confidence.

All eyes are now on this month’s Budget, the government’s opportunity to set out its first full-year economic strategy.

Since taking office, Labour has framed almost every decision around Fiscal Discipline — closing what it calls the “black hole” in the public finances. That commitment to balancing the books limits scope for tax cuts, new subsidies, or large-scale housing investment.

One possible outcome is a Budget that leans on existing revenue streams, with more of the burden falling on wealth and assets rather than wages. Housing fits neatly into that logic: a sector that can be taxed and regulated without adding to public borrowing.

For the market, tone matters as much as policy. When government signals consolidation instead of stimulus, activity slows — developers pause projects, buyers hesitate, and sentiment softens.

The danger isn’t a sudden crash but a Confidence Squeeze: fewer transactions, slower price growth, and a wait-and-see market that feeds on its own uncertainty.

The construction sector has been flashing warning lights for months.

The Home Builders Federation reports that planning approvals in England are at record lows — barely 2.5 Homes Approved per 1,000 People in 2024-25. Savills estimates housing starts are running 25% below pre-pandemic levels, while material costs remain around 18% higher than in 2019.

On the ground, though, developers are facing even steeper pressures: wages, subcontractor rates and labour availability mean the real cost of delivering new homes is higher than the published indices imply.

Developers are pragmatic: when fiscal risk rises, they slow activity, delay starts, or re-sequence schemes until clarity returns. And on the other side of the table, many land and development-site owners are still asking 2021 prices, which renders a lot of schemes unviable once you factor in these higher construction costs and tighter lender scrutiny.

Until pricing expectations realign, more projects will sit stalled, not because there’s no demand, but because the numbers simply don’t stack.

New Build completions in England Have Dropped to Around 160,000 to 170,000 a Year. Even after adding conversions and change-of-use homes, Total Net Housing Delivery still Only Reaches Just Over 200,000 — far short of the government’s 300,000-a-year ambition and drifting further away.

The same slowdown is visible in the rental market.

Smaller landlords have faced mounting pressure since 2016 through Section 24, the 3% SDLT surcharge, wider licensing and now, of course, the Renters’ Rights Act. The National Residential Landlords Association estimates their numbers have fallen by around a quarter since 2016, while institutional Build-to-Rent ownership has grown nearly 30%.

Big capital thrives under regulation; it creates barriers to entry. What’s compliance overhead for a REIT is a full-time burden for a private landlord — and that gap is reshaping the sector.

Major players such as Legal & General, Lloyds Living and Grainger are clearly scaling their rental operations. For example, Lloyds now manages around 7,500 homes valued at about £2 billion, while Legal & General has committed over £3 billion into the build-to-rent sector and delivered more than 10,000 homes.

Grainger itself manages over 9,000 homes and has thousands more in the pipeline. These numbers confirm that the institutional rental sector is moving into the mainstream.

Labour’s housing agenda — higher standards, fairer rents, more oversight — is well-intentioned, but it risks concentrating ownership rather than broadening it. With fewer small landlords and delayed construction, Supply Tightens Even Further, pushing rents up while choice narrows.

Now… when housing transactions slow, it’s rarely a sign of collapse — more often a Pause for Policy.  Buyers and developers hold off until the next fiscal statement, while the rental market continues to run hot as demand outpaces supply. Housing moves in cycles: it retreats, then resets.

To gauge where we stand, it helps to look back.

• In 1990-92: Interest rates hit 15 percent, unemployment doubled, and prices fell about 20% — a macro shock, not a policy failure.
• In 2008-09: A global credit freeze cut transactions in half and drove prices down 18 percent.
• And Shortly After the 2022 Mini Budget: Bond markets panicked, mortgage rates jumped from 2 to 6 percent, approvals halved; nominal prices dipped around 5% before stabilising.

By contrast, 2025 looks far more stable. The Base Rate Sits at 4%, Unemployment is Roughly 5%, and Mortgage Arrears Remain Low by Historical Standards. Around ⅓ of Homeowners Own Their Properties Outright, and many more have very small mortgages, which reduces the system’s exposure to rate shocks.

Banks are also far better capitalised than in 2008 — average Tier 1 Capital Ratios are Roughly Double Pre-Crisis Levels, meaning banks now hold much larger, higher-quality reserves to absorb losses if the economy turns.

If interest rates ease further in 2026, that would add another layer of insulation, supporting affordability at the margin.

Taken together, this makes a systemic crash unlikely (though never impossible). What’s more plausible is Regional Divergence — softer prices in London, the South and East where affordability is stretched, and greater resilience in the Midlands and North — as confidence adjusts rather than collapses.

Property cycles feed on emotion as much as economics. Every slowdown invites the familiar wave of headlines predicting collapse — because fear grabs attention. But history shows most of those calls are wrong.

If you’ve followed the UK housing market for any length of time, you’ll know there’s never a shortage of crash predictions. Type “UK housing crash” into Google and you’ll get thousands of articles, blogs, YouTube videos etc. dedicated to calling the top — often for years at a time.

But historically, most of those predictions haven’t played out. Over the past two decades, we’ve had far more warnings of double-digit price falls than actual downturns. In most cases, the market didn’t crash; it simply flattened, dipped a little, and then inflation quietly eroded the real value over time.

That doesn’t mean the market is invincible. Far from it. Real downturns usually happen when optimism detaches from fundamentals — what economists call “Exuberance”, where prices rise simply because people expect them to. When that kind of sentiment collides with a sudden external shock — a genuine Black Swan — that’s when corrections become unavoidable.

And of course, hindsight is 20/20. Looking back, the triggers behind past crashes always seem obvious — the credit boom of the 2000s, the bond-market panic in 2022 — but at the time, they weren’t. What actually moves the market are the shocks no one fully sees coming: a financial crisis, a global credit squeeze, a geopolitical rupture, a pandemic, a major bank failure.

The broader point is that routine crash predictions rarely cause anything by themselves. It usually takes a severe, unexpected shock to turn anxiety into a genuine collapse.

The bigger risk is narrative contagion — the moment enough people expect prices to fall, they wait. Buyers pause, sellers hesitate, and liquidity dries up, creating the very slowdown everyone feared. That’s why understanding the fundamentals matters far more than reading the headlines.

Right now, those fundamentals are mixed, not catastrophic. Transaction volumes are roughly 20% below long-term trend. Construction output is down around 10% year-on-year.

Rents are still rising at around 5 to 6%. And nominal price growth nationally is sitting at roughly three percent. This isn’t a credit-fuelled bubble or a demand collapse — it’s a policy-tightened market where caution has replaced exuberance.

Looking at the next year or two, there are really two broad paths that could unfold. In the first, we get a “Managed Adjustment”. The Budget may tighten the system but confidence broadly holds.

Developers adapt to new requirements, institutional capital keeps flowing into the rental sector, and rents continue to rise until supply begins to recover. In that scenario, prices flatten or perhaps drift a little lower in real terms, but the market remains functional.

The second possibility is a Sharper Policy Shock. If taxation or regulation over-reaches — for example, if capital-gains rates were aligned with income tax without any transitional relief — smaller landlords could accelerate disposals into early 2026.

That could create short-term regional corrections of five to eight percent, though a nationwide crash remains unlikely for as long as credit stays accessible and the banking system remains stable. Either way, policy rather than interest rates will be the main driver of housing conditions through 2025 and 2026.

For buyers, this is a period to stay alert rather than anxious. Mortgage markets can re-price quickly after a Budget — a small movement in gilt yields can shift fixed-rate deals by half a per cent almost overnight — so it’s worth watching lenders closely in late November.

Local stock levels also matter more than national averages. Rising listings create negotiating power; falling listings suggest scarcity. And with energy rules gradually tightening, homes already close to EPC C tend to hold value better, while older, less efficient stock may attract five-to-ten-percent discounts once lenders factor in expensive upgrade costs.

Above all, it’s a time to think long-term. With inflation drifting down and capital growth likely to be modest, stability and rental yield matter more than short-term swings.

For sellers, liquidity and preparation matter. Zoopla’s latest analysis shows the typical UK home now sells for around 95 to 96% of the asking price — roughly a 4.5% discount on average. It’s a clear reminder that over-pricing simply drags out time on market and narrows your buyer pool.

If you want to see how this plays out in your own area, we’ve included a link in the show notes to the Property Solvers Asking Price vs Sold Price Tracker, which shows the gap between open market listing prices and final sale prices across the country.

Showing compliance helps too — updated EPCs, gas-safety certificates and electrical checks all reassure both buyers and lenders.

Flexibility also pays off. Well-run auctions can deliver faster, more certain results — especially for properties that are tenanted, inherited, or need work — because buyers commit to a fixed timetable and contracts are exchanged quickly.

At Property Solvers, we regularly see sales complete up to 50% faster when paperwork is ready early and the route to sale matches the seller’s circumstances. And even if Budget headlines briefly cool demand, serious buyers typically return once uncertainty clears. Well-priced, well-presented homes still move quickly, even when sentiment is cautious.

Behind all of this lies a wider philosophical shift. Housing is no longer just social policy — it has effectively become a fiscal instrument. By raising standards and broadening oversight, the government transfers part of the cost of maintaining and regulating housing away from the Treasury and onto private owners.

Politically, it signals fairness to tenants and fiscal discipline. Economically, it reduces flexibility and increases the compliance burden on investors. Property now behaves less like a speculative asset play and more like regulated infrastructure, where structure, efficiency and cashflow discipline matter more than leverage.

So when people ask whether Labour is about to crash the housing market, the honest answer is that today’s fundamentals don’t resemble the classic conditions for a collapse.

Yes, the system is under pressure — but it isn’t overstretched. Banks are far better capitalised than they were in 2008 and the labour market, while softening, remains broadly stable. More importantly, the UK’s structural constraints haven’t changed. We still fail to build enough homes to meet demand, and that chronic undersupply continues to act as a floor beneath prices even when sentiment cools.

The Office of Budget Responsibility’s latest projections underline the broader backdrop: weak productivity, subdued growth and limited fiscal headroom all point towards a slower, flatter market rather than a dramatic reset.

And this is where Labour’s role becomes clearer. Their reforms don’t produce the kind of credit-driven crash we’ve seen in past cycles — instead, they influence confidence, timing and delivery. In a market this tight, even small policy shifts can reshape behaviour long before they show up in the headline data.

The real risk isn’t a cliff-edge. It’s a slow, uneven adjustment shaped by tax decisions, regulatory pressure, and how quickly clarity returns after the Budget. Some regions may soften; others may hold firm. But a nationwide collapse would require conditions that simply aren’t present today.

For homeowners, that means fewer windfalls but also less chance of a free-fall. For renters, higher standards may eventually filter through, though rents are likely to rise further before they stabilise. And for investors, adaptability becomes essential — structuring properly, managing cash flow, and working with regulation rather than fighting against it.

At Property Solvers, we operate across both fast cash-sale and regulated auction routes, giving us a close-up view of how policy shifts influence behaviour on the ground. If you’re weighing up whether to sell now or hold through the next round of reforms, we can help you compare options realistically and plan strategically.

A massive thanks for watching. If you found this breakdown useful, please like the video, subscribe to the channel, and hit the notification bell for more insight on auctions, fast sales, and the UK housing market.