LONDON — The U.K. property market may be verging on a major downturn, with some market watchers warning of a collapse in prices of up to 30% as data points to the biggest slump in demand since the Global Financial Crisis.

New homebuyer enquiries plunged in October to their lowest level since the 2008 financial crash, excluding the period during the first Covid-19 lockdown, the latest RICS housing surveyors report showed last week.

Meantime, the MSCI UK Quarterly Property Index, which tracks retail, office, industrial and residential property, slumped 4.3% in the three months to September, marking the sector’s worst performance since 2009.

The market slowdown marks a reprieve from a two-year, pandemic-induced home buying frenzy, with property transactions in September down 32% annually from a 2021 peak.

But as the era of cheap money fades, and the Bank of England doubles down on inflation-busting rate hikes to counter the chaotic mini-budget, economists say the downturn could be more acute than first thought.

“Although a house price correction is widely expected as part of the ongoing recession, it appears to be unfolding faster than anticipated,” Kallum Pickering, senior economist at Berenberg, wrote of the U.K. market Thursday.

The investment bank now sees U.K. property prices declining by around 10% by the second quarter of 2023. But some lenders are less sanguine.

Nationwide, one of the U.K.’s largest mortgage providers, said earlier this month that house prices could collapse by up to 30% in its worst-case scenario. Meanwhile, the gloomiest of 2023 estimates from banks Lloyds and Barclays point to drop-offs of almost 18% to over 22%, respectively.

Indeed, prices have already begun falling in some places, according to property search site Rightmove, which said Monday that sellers cut prices by 1.1% in October, taking the average price of a newly-marketed home to £366,999 ($431,000).

The U.K. is not alone. Rising interest rates, soaring inflation and the economic shock from Russia’s war in Ukraine have weighed heavy on the global housing market.

Recent analysis by Oxford Economics showed property prices look set to fall in nine of 18 advanced economies, with Australia, Canada, the Netherlands and New Zealand among the markets most at risk of declines of up to 15%-20%.

“This is the most worrying housing market outlook since 2007-2008, with markets poised between the prospect of modest declines and much steeper ones,” Adam Slater, lead economist at Oxford Economics, wrote last month.

But the U.K.’s unique economic landscape puts it at higher risk of mortgage delinquencies, according to Goldman Sachs. Factors at play include Britain’s worsening economic picture, the sensitivity of default rates to downturns, and the shorter duration of U.K. mortgages relative to euro zone and U.S. peers.

“Looking across countries, we see a relatively greater risk of a meaningful rise in mortgage delinquency rates in the U.K.,” Yulia Zhestkova, an economist at the bank, wrote in a report last week.

Meantime, rising unemployment risks — a historic barometer of delinquency rates — add to pressure on the U.K., which Goldman Sachs said is “already in recession.”

The U.K. economy contracted 0.2% in the third quarter of 2022, latest GDP figures showed Friday. A further consecutive quarter of decline in the three months to December would indicate that the U.K. is in a technical recession.

The Bank of England warned earlier this month that the U.K. now faces its longest recession since records began a century ago, with the downturn expected to last well into 2024.

Describing the outlook as “very challenging,” the central bank said unemployment would likely double to 6.5% during the two-year slump, affecting around 500,000 jobs.

Such a spike in unemployment could “considerably” raise the risks for the housing market by potentially creating a wave of forced sales and foreclosures, Oxford Economics warned in its report. Indeed, according to Goldman Sachs’ analysis, for every one percentage point increase in the U.K. unemployment rate, mortgage delinquency tends to rise by over 20 basis points after one year.

“If unemployment were to rise sharply, the dangers to housing markets would be amplified considerably,” Slater said.

Still, much of the outlook will hinge on the government’s upcoming fiscal statement Thursday, when Finance Minister Jeremy Hunt is expected to unveil £60 billion ($69 billion) of tax hikes and spending cuts set to weigh heavy on growth.

Some strategists have said Hunt could delay much of the savings until after the next election — due no later than January 2025 — in a bid to shield the economy during the height of recession. However, Hunt has been candid in warning of “eye-watering” decisions ahead.

The Bank of England, for its part, has insisted that it will continue to raise rates, albeit to a potentially lower peak.

Yet even with little let-up expected for the housing market in the near-term, economists say the risks of a shock reverberating across the wider financial market are minimal.

Greater regulation and adequate capitalization of the banking sector following the financial crisis have limited exposure to risky mortgages. Meanwhile, the majority of housing debt sits with households with reasonable savings buffers, Berenberg’s Pickering said.

“We see limited risk that the unfolding housing market correction will morph into another financial crisis,” he added.