Coronavirus & the UK Housing Market – Where are We Heading?
Given the international impact of COVID-19, property owners would be forgiven for thinking this might spell problems for the UK housing market. However, let’s take a realistic view of how the pandemic is affecting the property market, and how quickly we need to get prepared for the bounce back!
Demand for Homes
Housing across the UK is always in high demand. For popular locations such as Chichester, there is an
additional cushion in place around property values which carry a premium due to the prestigious area and lifestyle on offer. For the time being, amidst the Coronavirus pandemic, we will inevitably see reports of sharp drops in the volume of sales. This is to be expected due to several factors:
- Estate agents being closed
- UK residents staying at home
- Most workplaces being shut
- Restrictions on the ability to move home
Whilst we know that the UK housing market is taking a pause, this could be a time that investors and buyers put to excellent use. Rather than being a time for sudden decisions, the fast pace of the UK housing market has slowed for a short period. It is an ideal opportunity to put plans in place, make decisions about property acquisition or sale strategies, and look ahead to the future to be poised for action when normal trading resumes.
One of the key questions is how the outbreak has impacted the value of properties, rather than the rates of sale. Let’s take a look at expert predictions which anticipate a short plateau before property values resume their climb, however, whilst we wait for this to happen it is a good time to take stock and plan ahead.
UK Property Sales
As it stands, the rates of sales have dropped off, which is just as we would expect. Knight Frank predicts that sales will decline by almost 750,000 transactions from 2019, a drop off of 38%. However, it is worth considering the impact of Brexit and that sales would have been likely to decline this year even without COVID-19 added to the mix.
This forecasting is based on the currently available data, which is a prediction made on the basis that the lockdown in the UK will continue until the end of May.
Since there are so many variables, at this stage we are working on educated guesses, but it seems reasonable to assume that sales volumes will see a significant short term decrease. This isn’t something we think warrants any sudden action because, with estate agents on short-term lockdown and sale completions on pause, it is a natural result of the restrictions in sales.
The Economic Climate
Another big factor in considering the best time to buy or sell is the impact on the economy, and whether consumer confidence is likely to take a knock. Oxford Economics has predicted that GDP in the UK will drop by 2.5% in Q2. That said, they also predict a resurgence of 1.8% in Q4, which will repair much of the damage. On this basis, it seems likely that the economy will resume normality within a few months – without the disastrous economic impact that seems to be floating around as daily click-bait.
Since the Bank of England has cut the base rate to 0.1%, there are some positives in that this is anticipated to remain low and reach levels of around 1.5% by 2024 year-end.
This means that whilst unemployment is expected to take until Q3 2021 to recover, interest rates will remain low for some time thereafter – great news for borrowers, not such great news for lenders!
For savvy investors, this presents a prime opportunity to take advantage of interest rates whilst they are at such a low, and to plan future-proof investment strategies to harness the low rate of borrowing to achieve rates that, even a few short weeks ago, would not have been available.
Tracking the Curve
Before the pandemic hit, the UK housing market was performing well. London prime real estate prices have been bucking the 5-year downward trend, and showing growth in value not seen in a long time.
In the rental sector, letting rates have been growing by between 1.1-1.2% across the capital. It seems likely that these rates will remain fairly stable, and any slight decrease in rental values will recover quickly. The rental market therefore, remains strong, and any temporary decreases in demand are very likely to recover fast.
A lot now depends on how long the lockdown lasts, and how accurate the predictions turn out to be. Most estimates indicate an initial sharp drop, with pricing and values recovering in a fairly short timescale.
The other big consideration is Brexit – we don’t yet know whether the transition phase will be delayed past 31st December 2020, or remain in place. The outcome of that will also be a factor in the future of the property market, and how fast the recovery is likely to be.
Interestingly, significant areas of the UK property market look to be largely unaffected, contrary to what you might see on the news. This may be due to the ongoing Brexit saga, and the fatigue experienced by investors for the last few years who are now reluctant to absorb any further delays. It seems that the strongest areas of the UK housing market are robust enough to withstand any temporary downturns, and once property trading is permitted to resume, stakeholders will need to be ready to move very fast to keep up with the backlog of trades, which seem likely to skyrocket!
Forbes reports that a survey of London buyers and sellers showed very little decrease in market confidence. 83% of respondents confirmed that they intend to proceed with property sales or purchases this year as planned. The impact is, therefore, going to be a short-term delay whilst those transactions cannot be completed but will resume normal business once the lockdown is over.
The survey also reported that 69% of respondents confirmed that they would expect to proceed with their plans, even if the virus becomes more widespread.
For areas such as our city, with the unique attractions of Goodwood and West Dean, Chichester Harbour and the beauty of the South Downs, property prices aren’t going anywhere. With the exclusivity offered by the availability of housing, this offers a one-time opportunity whereby these areas with secure foundations are likely to out-perform any previous statistics.
Areas of Opportunity
Both Nationwide and Halifax announced increases in pricing growth in the housing market in March. The monthly house price indices showed a £3,000 and 3% growth respectively, based on year-on-year growth.
Knight Frank is forecasting a drop in UK housing prices this year of 3%, with a corresponding growth of 5% in 2021. This tells us that the upward trajectory is going to keep on climbing. A short-term blip might provide a tight window of potential to secure some highly competitive deals, but with further growth of at least 2% next year – and likely much more in areas of high demand – those deals will not be on the market for long.
Lettings companies OpenRent and SpareRoom both reported growth in the rental sector, although this has been curbed somewhat by the government advice to avoid moving home during the lockdown.
OpenRent reported an increase of 40% in London house prices, driven by short-term rentals from 6-months at higher rental prices. SpareRoom reported a 15% growth in advertising from agents and a 12% growth in advertising from landlords. Much of this is likely due to landlords offering very short-term lets such as holiday rentals for longer periods to plug the drop in holiday tenancies.
Conversely, Zoopla has reported that whilst advertising has been rising, demand has fallen with a 40% drop in demand of the week to 22nd March. Given that the lockdown began around the same time, this isn’t particularly surprising. Before the lockdown and restrictions on house moves, the rental market was seeing impressive growth. This tells us that, whilst demand must fall when people are not able to relocate, the pace of the market will swing upwards dramatically when those restrictions are lifted.
This also demonstrates the creativity and flexibility of the housing market to respond quickly to demand where it arises and to use its property assets to provide housing in periods when security is key to so many people.
With all the uncertainty, it is a time where many people are concerned about the long-term impact on the housing market. The market is expected to remain in limbo for at least a few weeks until the peak of the pandemic has passed.
However, when we look at forecasting and predictions stretching into next year, it is clear that market performance is going to see a resurgence, and opportunities to take advantage of dips in property prices, low-interest rates and plateaus in the rental market will be short-lived.
Volumes are bound to drop during a time when trading is limited. What this means, though, is that the backlog of transactions waiting to complete are going to set an unprecedented pace when the limitations are removed.
Tod Anstee Ltd is one of the largest and most experienced firms of independent property consultants in Chichester and West Sussex. If you are trying to make sense of the marketplace, have an ongoing project which you need advice on, or are trying to work out the optimal strategy to take advantage of market opportunities and plan for the future, give us a call on 01243 523723 or complete our quick and simple online contact form, and we will be happy to help!