With the reopening of the housing market in the UK, all eyes are watching to see how it responds. If you’re hoping to buy, sell, remortgage or just get on the property ladder, here’s why the coming six months could be crucial. Article by Nick Green.
The government has opened the starting gate on the UK housing market, and as expected it has proved more of a floodgate. Demand from buyers shot up by 88 per cent in the days following, according to property website Zoopla, which observed especially strong activity along the south coast as well as in major northern cities including Manchester, Liverpool, Newcastle and Leeds. Due to the bottleneck of deals that had been put on hold and chains that had been partly disrupted, the bounce-back actually surpassed pre-lockdown levels.
But the nation is waiting on tenterhooks for what will happen once this pent-up pressure peters out. Zoopla has warned that the flood of deals is ‘temporary’ and expects it to subside in the weeks ahead. After that, all bets are off: the market may revert to something like normality, or the delayed economic pain of the COVID-19 lockdown may kick in and damp the market down. At the present time, no-one can say for sure how big that impact might be.
Prices expected to drop – but by how much?
Predictions for the housing market have ranged from bullishly optimistic to doom-laden, meaning the truth is most likely somewhere in the middle. The Centre for Economics and Business Research warns of a drop in prices of up to 13 per cent, due to people worried about their future incomes holding off from making offers. At the other end of the spectrum, the estate agent Savills expects a five per cent drop, while some valuation surveyors predict even less.
Large or small, some form of price drop is widely expected. This in itself isn’t a bad thing – property price inflation has made home ownership increasingly unaffordable for many, and some will certainly benefit from a cooling of the market. The risk is that a sudden, sharp drop would itself put the market into a new kind of ‘lockdown’, with owners refusing to sell at reduced prices, causing the property supply to dry up.
Furloughing may cause hold-ups in the housing market
However, the UK housing market is a complex beast. Prices are traditionally higher (averaging around four to five times average income) than in other European countries, as historically demand has always outstripped supply. This is the case in the USA, where the property market has likewise stalled due to COVID, only for prices to stay high because so few Americans are daring to put their homes on the market at the moment.
A further potential snag in the UK has been identified by the Home Buying & Selling Group (HBSG), a body comprising a number of different surveying, conveyancing and removal organisations. In an open letter to the Chancellor, the HBSG has warned that the various businesses under its remit – all of which are crucial to the smooth flow of the housing market – may not be able to operate effectively unless the furlough scheme is updated.
In essence, surveyors, conveyancers and removal firms will have to deal with a surge in business at a time when many of them have furloughed workers. Bringing these workers in from furlough is a big financial risk to the business, because if demand then dries up the business cannot furlough them again until at least three weeks later. The HBSG is therefore requesting that they be allowed to furlough staff on a weekly basis, so that they can work when there is demand and be furloughed at other times.
If this request isn’t granted, or another solution found, there could be a new holdup in the market, since these businesses will be unable to operate at full capacity and house deals will take longer to complete. This could choke supply, but it's hard to say if this would buoy prices up or simply keep the market in the doldrums.
The long-term outlook for the housing market
The Royal Institution of Chartered Surveyors (RICS) has been one of the most positive voices throughout the crisis. Even before the market shutdown was lifted, they were predicting that property sales would rebound to their previous levels in ‘around nine months’. Mortgage brokers too have taken a similar attitude, again citing nine month as the most likely figure in the Mortgage Broker Benchmark study. Just over half are more optimistic still, predicting a return to normality within six months.
How much of this is scientific prediction, as opposed to mere hope, remains to be seen. No-one should be under any illusions about the huge challenges facing the UK economy, and by extension the property market. Eight million workers have been furloughed from work and millions face employment uncertainty when the COVID lockdown finally lifts. Given that buying a home is the biggest financial commitment most people will ever make, it seems inevitable that there will be some impact.
But there is a powerful case for the optimists. Many have drawn comparisons with the 2008 property crash, but the lockdown is in reality very different. The underlying economy pre-COVID was robust, so in theory the UK can soon head back to work and pick up its tools as if nothing happened. Assuming businesses have been able to survive the hiatus, their customers should still be where they left them. Of course, many won't have been so lucky.
The other key point is that buying a home is not ‘just’ a financial transaction. People buy homes because they want homes, and no lockdown or recession is going to change that. So although confidence will have taken a battering, the biggest driver of the housing market – demand – is not going anywhere.
Tips for sellers and buyers post-COVID
If your housing chain was broken by the shutdown, or if you want to put your house on the market now, here are some useful pointers.
1. Don’t be over-ambitious on price
Try not to get hung up on your own idea of what your house is worth. Although you shouldn’t accept the first offer made to you, do remember that circumstances have changed. Don’t expect housing-boom prices – be realistic, and remember that next month offers might be lower.
2. Consider going chain-free and selling first
A very good tactic in a market that’s expected to fall is to sell now, put the money in the bank and live in rented accommodation until you find your next home. This has the double benefit of potentially increasing your buying power, while also making you a more attractive buyer (so you may be able to negotiate an even lower price when you buy).
3. Choose your conveyancer carefully
Try to find a firm of solicitors that hasn’t been too badly affected by furloughing, so that they have the necessary personnel to handing your transaction in good time. Remember they may be very busy right now.
If you’re looking to buy now – as a first-time buyer or a new house move – these tips may help.
1. Maximise your deposit
If you can squeeze a bit more out of your savings to get the next level of mortgage deals, you could make significant savings – while reducing the risks of negative equity if prices do drop.
2. Look to buy chain-free
The longer your housing chain, the more likely it is that someone will pull out, putting the whole deal on hold. Do your best to find properties that have already been vacated, or where the owners may be emigrating, moving into rented accommodation, or going into long-term care.
3. Choose your conveyancer and surveyor carefully
As mentioned above, look for well-staffed firms that won’t result in frustrating delays.
4. Use a mortgage broker
The big silver lining in all of this is the record low Bank of England base rate, which is resulting in some attractive mortgage deals. However, interest rates are only one part of a mortgage deal, and brokers still have access to more and better deals than can be found on the high street. A broker can also help you strengthen your mortgage application at this tricky time.