The property market might be open again, but that doesn't mean business as usual, here's what might change
When the Chinese city of Wuhan entered lockdown at 10am local time on 23rd January, it seemed inconceivable that the United Kingdom would follow suit any time soon. After all, Wuhan’s population is 11 million—that’s more than London. Yet, two months to the day later, Boris Johnson announced the UK’s lockdown measures, albeit ones less stringent than those imposed on Wuhan.
The coronavirus lockdown effectively shut the UK property market. The government advised people not to move. Estate agents locked their doors. Viewings became impossible.
According to Zoopla, demand from buyers dropped by 70%. New listings were mainly limited to online estate agents. Valuations relied on comparables and drive-bys. Lenders became twitchy. And hundreds of thousands of buyers and sellers were left in limbo.
So, with the restrictions on viewings being lifted on the 13th May, what will happen to the property market?
On 11th March the Bank of England announced an “emergency” cut in interest rates to shore up the economy amid the Covid-19 outbreak. They were cut from 0.75% to 0.25% (again bringing the rate down to the lowest level in history). Just eight days later, the Bank acted again, reducing the base rate to just 0.1%.
On the surface, this looked like great news for borrowers. However, lenders swiftly pulled mortgage products off the shelves, being concerned about their own liquidity issues. By early April only the most financially secure borrowers were able to secure new mortgages.
The Bank of England also announced measures to increase the money supply in the UK by £200 billion. There may be more to come.
What sort of recession?
Strictly speaking, a recession is defined as two consecutive quarters of negative growth. But few would argue that the UK is not in a recession right now. The question is this: what sort of a recession? Some economists suggest it will be a V-shaped recession—i.e. the UK economy will bounce back quickly. Others think it will be a U-shaped recession—i.e. it will take a lot longer for the economy to recover.
Most economists, unfortunately, sit in the latter camp. If this is the case, the UK could suffer sustained levels of high unemployment, low economic growth, and little in the way of wage rises.
Impact on property prices
Firstly, no one knows what post-lockdown society will look like. Potentially there will be months, if not years, of social distancing in one form or another. We also don’t know how long or severe the recession will be. But there are some factors to suggest that there will be a surprising amount of stability in the housing market.
Interest rates are low and look to stay that way for a long time. Lenders are re-entering the market (cautiously). And there will be pent-up demand. These factors may counterbalance the other economic drags. Expect prices to flat line or dip slightly over the next 18 months.
A person's home is their castle
This phrase has never been truer. We’ve never spent more time at home. And there is, indeed, no place like home.
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