There are too many possible macroeconomic outcomes that will influence our property market to know for answers yet. However, If you have a sale in progress and you are close to exchanging contracts, it may be prudent to do what you can to make the exchange happen as the mortgage market place is retracting now and it will limit the amount of active buyers in the immediate short term.
I read earlier today that Niraj Shah, an economist at Bloomberg Economics, said that any fall in house prices will depend on broader factors such as the state of the economy after the lockdown, rather than on the lockdown itself. Shah describes the current situation we’re in as ‘a shutdown, not a crash’ and likens it to ‘an induced coma’ for the whole housing market to limit the damage to it. He said, “the effect on prices will hinge on whether unemployment surges in the meantime, and whether stricter lending criteria remain in place once the market re-opens”. This was days before many lenders put a hold on new loans or reduced their maximum lending loan to value to 60% as a precautionary measure.
However some Lenders, particularly the Nationwide have just increased loans to 85%, a really positive move that other lenders are sure to follow. This will increase the number of buyers able to get mortgage funding.
Broker Savils PLC has gone on record predicting a 10% fall in house prices this year.
New sales are in effect currently prohibited, and agents cannot organise physical viewings on properties (though some are doing virtual viewings with owners where possible) and for the lucky buyers with large enough deposits, it remains to be seen whether lenders will revert to organising desktop valuations. Facing such economic uncertainty, it may be a policy that’s too risky for many lenders. It was only in 2007 that we saw the demise of Northern Rock and Mortgage Express, the result of both lenders utilising riskier lending practices.
Lenders will face several challenges in the coming months when deciding mortgage advances. Firstly, how secure is the individual’s future income? Lenders may have to adopt broader practises in assessing the buyer’s industry for example, and not just their occupational employment.
Property prices are determined largely by the availability of credit lines. Restrict these and although demand and supply may be present, transactional volumes will remain lower as only those with an ability to buy can purchase.
If unemployment becomes a significant issue, then the price of property will be less robust as moving becomes less of a priority. These are some of the things we cannot predict just yet.
Looking at previous periods of market turbulence
The two significant events that I remember are the financial crisis in 2008 and the UK referendum and Brexit vote in 2016.
In 2008 the credit crunch started in the US, the result of ‘sub-prime’ risky loans being packaged together with low risk loans and sold between lenders. It reached the UK and lenders stopped lending to each other.
The economy was in recession, the Bank of England dropped rates sharply, lenders withdrew credit lines suddenly and those desperate to sell to a smaller tranche of buyers reduced prices sharply causing a shift to price lower to secure a buyer.
Prior to the financial based recession sale transactional levels had been rising fast, peaking in mid-
2006. The fall in transactions in late 2007 coincided with the reducing lines of credit on offer from UK mortgage lenders.
Transactional volumes have been consistent from December 2009 through to 2019 as UK lenders have adopted a more considered and less risky approach to lending, and the peaks and troughs are expected and normal of any market.
And what of prices during this same period?
This chart shows the average price of a flat (based on UK Land Registry Sold Price data) in SE15 3 Nunhead.
Prices peaked in September 2008 at £231,287 (bear in mind that sold prices are quite a few months behind the actual market due to the transactional time from offer to completion).
By August 2009 this was at a low of £179,184, a fall of 22.52%.
However, September 2009 saw sales values start to climb and by August 2013 the average price of a flat sold in SE15 3 was £232, 041.
The highest average price ever recorded was in June 2019 when flats in the location averaged £408,539.
After the Brexit vote in June 2016 you can see from the transactional chart there was a sharp decline in numbers in May and June before it started to return to normal levels. However average prices remained consistent as the economy was buoyant, unemployment low and interest rates remained low and credit readily available.
The last 10 years
In January 2010 the average price of a flat in SE15 3 was £191,480. In January 2020 the average price has increased 102.17% to £387,122, a period of consistent growth following a market correction.
How does the current Corona Market compare?
It’s still too early to know how things will unfold with property after the Pandemic allows us to start returning to full operation, because much will depend on the contraction of the economy, level of employment and the availability of credit lines (how risk averse mortgage lenders are).
Prior to The Pandemic, the number of mortgages approved for house purchase in the UK increased to 73,546 in February 2020, the highest since January 2014, an indication that confidence was indeed returning to the housing market after Brexit had dampened appetite.
The Bank of England’s MPC voted unanimously to hold the Bank Rate at an all-time low of 0.1 percent during its scheduled March meeting in response to the severe economic and financial disruption caused by the spread of Covid-19. Unemployment will rise steeply, but with Government support, new jobs will be created quickly.
There’s a growing anticipation of an economic contraction, however the housing market may pause, rather than drop 20% as it did in 2009. Continued low interest rates will enable the public to pay off debts and a reduction in VAT will encourage spending as the UK rallies together to bounce back and it could start as early as the third quarter of the year.
There is likely to be a lot of stagnation for a short period. There will be some ‘stressed’ sellers, selling expendable assets, and favouring those with cash funds able to transact quickly. These will distort the market, as the majority of sellers won’t be interested, or able to sell at a low price, so will either remain on the market or revise immediate plans.
It took 4 years after the financial crash of 2008 for house prices to reach their pre-crash peak, however this time around the markets haven’t tumbled due to debt per capita being too high. There are no more sub-prime or 100% mortgages and all other credit suppliers have been more responsible in their lending, as a consequence of that crash.
Some perspective is needed
If house prices fall a little bit, is it such a bad thing?
More affordable housing and low interest rates will mean millions more buyers getting onto the property ladder.
If you are buying a home for the longer term, for your family, to make commuting to work easier or quicker, to be near a good school for your children, or because it’s always been a goal to live in a specific location – these are all great reasons to remain focused and committed to buying.
Property should be treated as less as an investment, and more as a home and a life fulfilment.
However, 102.17% in 10 years means your home is also a great investment.
A more positive look forward
Roger Martin-Fagg is a leading consultant Economist and specialises in predicting and making economic trends and indicators understandable to non-economists.
This is his prediction for post-lockdown.
It’s a far more positive spin on things and is realistically optimistic in that he expects a quick drop in GDP, followed by a sudden growth.
Roger has called the right result for the last three general elections and US presidential election – often months ahead of them .
In 20 years his forecasts on the economy are mostly broadly right, (which as he puts it is better than precisely wrong!).
- The economy is taking a massive hit but is being supported as never before by the government.
- When the lockdown is over people will spend at a ferocious rate.
- The third quarter will still be tough but by Q4 activity (spending) will be through the roof.
- The prospect for 2021 is very favourable although shortage of labour could curtail growth.
Thinking of selling your property? – the options you have right now
I’m sure a lot of people that wanted to sell just prior to lockdown will be cautious and wait a while until there’s a clearer picture of what will actually happen with regards to demand and property values.
Some of our other clients have taken positive steps to ensure their property isn’t vacant.
A client who was on the market with us just as lockdown was enforced, decided to take our advice to short term let, offering a discount to a key worker.
The flat was recently marketed using a video tour on Rightmove and Zoopla, advertised at a price £200 per month below the typical area rental prices. Would-be tenants were directed to view the video.
We had over 75 enquiries and several offers immediately and the owner was able to choose a tenant who suited her circumstances, and in exchange for a discount of £150 per month off the usual rent is happy for us to continue showing buyers as soon a lockdown rules are relaxed. A short tenancy agreement is being signed.
You can also send us images or a video of your property, or carry out a walk through video using whatsapp for us to get a more detailed view of your property. Call us to talk in more detail about this.
If you have any questions for us, please do get in touch. We may not have all the answers yet, but we’ll give you a honest and impartial view on things as they stand currently.