- British author, Fred Harrison, is famous for his 18-year property cycle theory
- He correctly forecast the last two house price crashes years in advance
- Now he is saying prices will rise by around 20% before a major crash in 2026
The house price prophet who predicted the last two property crashes years before they happened has warned of another impending boom and bust on the horizon.
Fred Harrison, a British author and economic commentator famous for his theory of an 18-year property cycle, is predicting turbulent years ahead for the housing market.
Speaking to This is Money, Harrison said house prices are about to boom once more.
He expects the average UK house price to rise by around 20 per cent between now and the end of 2026.
However, Harrison is then expecting a big crash to take place, with any gains made over the next two-and-a-half years wiped out entirely.
He believes Covid-19 caused house prices to rise higher and faster than they would have otherwise done.
That is due to factors such as the 2021 stamp duty land tax holiday inflating property prices, as many sellers simply added extra to the asking price of their homes.
The pandemic also caused a flurry of property transactions as many buyers sought homes they could work from comfortably, or with gardens.
The past year or so of house price dips has merely been a recalibration, Harrison says – and now the housing market is ready to continue its upwards trajectory.
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‘Prices are not dropping,’ says Harrison, ‘they are adjusting back on to the long-term upward trend, after the pandemic induced boom.
‘They will continue to glide upwards to the end of 2026.
‘Between now and then house prices will begin to rocket, and if history repeats itself then the rise will equate to 20 per cent or so above current levels.’
Harrison is expecting politics to provide the fuel to send house prices hurtling higher – both here and in the US.
‘The general elections in the UK, reinforced by the presidential election in the USA, will ensure benign policies for house prices,’ he says.
‘Politicians will do their utmost to accommodate property owners. In the UK, all political parties have fine-tuned their policies so as not to damage the prospect of the coming boom.
‘If Donald Trump wins in November, major tax cuts will quickly follow. Those cuts will be capitalised into home prices.
‘This will help to elevate confidence in global markets, giving a further push to property prices.’
‘As with the financial crisis in 2008, following the peak in 2007, it will end in tears.’
Harrison is also adamant that mortgage rates will likely continue to fall, which will encourage investors, first-time buyers and home movers to push forward with plans.
‘Mortgage rates will go down’
Mortgage rates have broadly been on a downward trajectory since August when rates peaked – and this is a trend that Harrison believes will continue.
He says: ‘Treasuries on both sides of the Atlantic will do their utmost to keep interest rates on a downward trend. That will further reinforce the rise in house prices.’
He adds: ‘A Labour Government would push for an increase in construction, which will persuade people that all is well in the property markets.
‘So more people will take out the forever 40-year mortgages with a growing sense that prices are heading in the right direction. In a rising market people will borrow at whatever interest rate.’
But with every boom, there must eventually come a bust.
Harrison is almost certain that this will come in late 2026 – and the only potential obstacle that could upset his timeline is war.
He says: ‘The crash in house prices is slated for 2026 – subject to no further military adventures in the Middle East and assuming Putin does not provoke Nato in Europe.’
‘President Xi threatens to retake Taiwan in 2027, but house prices will have peaked by then, anyway.’
He believes the next downturn could eclipse any house crash we have seen in the past.
He explains: ‘The economic crash will cause the convergence of the existential crises threatening our globalised society.
‘If my worst fears are realised, there is no telling where the bottom will be in the housing market.’
So should you trust Fred Harrison?
Forecasting future house prices is a difficult business. Many have tried and failed in the past.
But while Harrison’s views may seem far fetched to some people, he does have an uncanny knack for predicting house price crashes.
In his book, The Power in the Land, published in 1983, Harrison correctly forecast property prices would peak in 1989, as well as the recession that followed it.
In 2005, he published Boom Bust: House Prices, Banking and the Depression of 2010, in which he successfully forecast the 2007 peak in house prices and ensuing depression.
According to Harrison, he had already predicted the 2008 crash at least a decade before.
When This is Money spoke to Harrison in 2021 he told us that he warned the then-Labour Government of the 2008 crash in 1997.
Harrison says he has sent a similar message to current Labour leader Keir Starmer, in expectation that Labour will be victorious in the upcoming general election. However, he expects his advice will not be heeded once again.
He adds: ‘I have written to Keir Starmer, to alert him to the prospects. Does he really want Labour to take the blame for another economic crash? Not surprisingly, the response was non-committal.’
‘That was a repeat performance of my attempts to warn Tony Blair and Gordon Brown, when they entered Downing Street in 1997.
‘I wrote to warn them that they had 10 years to ring-fence the UK economy against the crash that would follow the peak in house prices in 2007. They did nothing.’
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I have recently split up with my partner and we’re in the process of selling our home. I’m looking to move closer to where I work in London.
Everything is very expensive and I don’t want to pay a vast amount towards a mortgage each month.
I am considering looking for a city centre flat with a very short lease remaining. Perhaps around 20 years.
I know a flat with such a short lease might be difficult to sell in future, but it would allow me to buy with cash rather than using a mortgage.
In future, I might also be able to extend the lease or purchase a share of freehold – especially if the leasehold reform bill is passed.
I have looked at a few flats, and they seem to have wildly different valuations.
How do I go about working out what a short leasehold property is worth, and how do I figure out how much a leasehold extension might cost me in the near future?
Once I’m the owner, it is possible to extend the lease and use a mortgage to do so? Any help would be much appreciated.
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Ed Magnus of This is Money replies: Buying a short leasehold flat comes with some obvious downsides.
But with leasehold reform potentially on the horizon, it may also be a window of opportunity – at least for those that are comfortable taking the risk.
In England and Wales, many flats are sold with a lease which gives the owner the right to live in the property for a set number of years.
After this time, the right to use the flat expires, returning it to the freeholder who owns the land the flat is built on.
The idea that you may be buying something for only 20 years before it is returned back to the freeholder can make it feel more akin to signing up to a long tenancy agreement – as opposed to owning something that is truly yours.
You may also need to pay a ground rent.
But it can still make sense for some people. As you mention, it can offer a cheaper route into an expensive area that would otherwise be unaffordable to you.
At the same time, you have to realise you are buying into a niche end of the property market.
The fact that mortgage lenders won’t lend on short leasehold homes means you’ll also be relying on cash buyers when you come to sell, unless you extend the lease.
You may well be buying into a depreciating asset, particularly if the property market remains relatively flat or even falls during the years you own it.
The price of a leasehold home should in theory fall as the number of years ticks down on the lease. But this isn’t guaranteed, and the opposite could, in theory, also happen if there was a sudden house price boom.
As you rightly mention, leaseholders in England and Wales look set to be given greater rights and powers over their homes as part of the new reforms.
The Leasehold and Freehold Reform Bill is currently going through Parliament. However, it will take time to become law and it could also be rejected or amended.
The bill aims to make it cheaper and easier for people to extend their lease or buy the freehold. This will include the removal of the so-called ‘marriage value,’ which makes it more expensive to extend leases when they’re close to expiry.
In search of expert advice, we spoke to David Fell, senior analyst at Hamptons, Shabnam Ali-Khan, a partner at law firm Russell-Cooke and a member of Association of Leasehold Enfranchisement Practitioners, and Linz Darlington, founder of lease extensions specialists Homehold.
How much does it cost to extend a short lease?
Linz Darlington replies: To work out how much you should purchase the flat for, the best place to start is to understand how much it will cost to extend the lease when you’re eligible.
No online calculator will be able to give you this answer, and instead you need to invest in a specialist valuation.
Appropriate valuers can be found on the Association of Leasehold Enfranchisement Practitioners website. Before you choose one, quiz them on how much experience they have on valuing and negotiating premiums on flats with really short leases.
Your offer price for the purchase should also reflect the fact you will need to pay both sides legal and valuation fees when you come to do the lease extension.
You will want to discount it further to take into account the fact you are taking significant risk and accepting the hassle involved with what could be a very contentious transaction.
David Fell replies: Under current rules, extending a very short lease that has between 10 and 30 years left to run is likely to cost between 30 per cent and 70 per cent of the flat’s value with an extra 90 years on the lease.
This figure falls to 8-10 per cent when extending a 70-year lease.
Current proposals to reform the leasehold system will probably reduce these costs, primarily by specifying the rate at which freeholders are compensated and abolishing marriage value, therefore cutting the cost of extending a very short lease.
Shabnam Ali-Khan adds: A surveyor can advise you on the value of a flat with a short lease. Ideally someone with local property knowledge and who is up to date with proposed leasehold reforms and how they may affect the value of leasehold flats.
Will the leasehold reforms happen?
Shabnam Ali-Khan replies: Where a lease has less than 80 years remaining at the start of the formal lease extension process, the premium is higher because of an element known as marriage value.
This represents the difference in value of the flat before and after the lease extension.
The difference is the marriage value, and the freeholder gets half. The bill is looking to abolish marriage value which on the face of it means reduced premiums.
Sounds good so far, but the bill is also looking to change some of the other elements which could result in higher premiums.
Although the general understanding is it will be cheaper under the new reforms where there are less than 80 years left on the lease.
It is likely the bill will be enacted this year but parts may be scuppered if freeholders challenge the proposals.
David Fell adds: Given the proposals will serve to reduce the value of many freeholds, they are likely to be challenged in court, particularly if they are retrospectively applied to existing leases which were bought at a value that reflected its terms at the time.
So given the proposals are not yet law, and the likely lengthy timescales involved, any purchase should probably be grounded on today’s rules, but with the hope that costs may fall in the future.
Linz Darlington adds: If the Leasehold and Freehold Reform Bill makes it through you could find doing the lease extension is much cheaper.
Clearly this will be an appreciated windfall if it happens, but don’t bank on it.
Can you fund a lease extension with a mortgage?
David Fell replies: High street banks typically won’t lend on flats where the lease has less than 50 to 70 years to run.
However, by law, all leaseholders have the right to extend their lease – a cost which rises as the lease runs down.
This payment is essentially compensation to the freeholder for both the potential loss of ground rent, as well as not receiving the flat back when the original lease expired.
On completion of the lease extension, the flat will become mortgageable, meaning a mortgage can usually fund a lease extension.
Linz Darlington replies: Borrowing money to fund a lease extension is not impossible, but it will limit your choice of lenders and make things more difficult.
Because your equity in the short lease will be limited, your lender will likely want the lease extension to be completed simultaneously with their release of the mortgage funds.
Coordinating your lease extension and remortgage to complete at the same time is not easy – so at the very least you should use the same firm of solicitors to handle both.
What else they should be aware of?
Shabnam Ali-Khan replies: Currently a leaseholder of a flat must be an owner of the flat for at least two years before they can exercise a right to a 90 year lease extension at a peppercorn (essentially nil) ground rent.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
There’s nowhere quite like Grantley Hall. Not in its native Yorkshire, not in the north of England, not anywhere in the whole of the UK for that matter.
This is an ongoing project of such lavishness that apparently house prices in the area have risen by 20 per cent.
And it’s all due to Valeria Sykes who, following her divorce from the billionaire and Brexit-backer Paul Sykes, has spent an unconfirmed £100 million on saving this 17th-century mansion and turning it into a glitzy and glamorous resort hotel a few miles from Ripon.
Arriving after dark is a thrill, the driveway lit up, with the River Skell flowing beside it.
Handsome young men in tweed waistcoats greet us outside the front door — one takes the luggage (and it’s important to turn up with lots of luggage here), while another parks our car.
Then it’s a seat in the drawing room and a glass of champagne during check-in before being escorted to one of only 47 rooms (with more than 400 staff).
There are five restaurants, including Shaun Rankin’s Michelin-star outlet; a nightclub; casino; the swankiest of gyms (44 running machines, including one that’s underwater); cryotherapy chamber, Formula 1 car simulator; lifestyle consultant; indoor/outdoor pool in the Three Graces spa; a ‘snow room’; gift shop; Japanese garden and so on.
At times, it feels like Dubai. At others, it’s Claridge’s or The Dorchester — with prices to match.
Footballers and their wives come here to splash the cash, but most of the guests we meet are, like Ms Sykes, Yorkshire born and bred — and proud to have such a statement hotel in the county.
We eat in the Pan-Asian restaurant, EightyEight, in the basement of a separate building where there’s also a wedding reception area. This seems to be the brash part of the resort. Service is slow but apologies come thick and fast.
Generally, there’s quality at every turn — which makes me wonder why on earth so many paintings are fake copies of Old Masters in tinny frames. And there’s piped music almost everywhere.
Even in low season, you won’t get a room for less than £500 a night but, frankly, anyone who quibbles at the cost probably shouldn’t be here in the first place.