The UK property market has been halted as a result of the coronavirus outbreak, but the question is: to what extent will house prices be affected by the slowdown?
Over the last few years, investment in the real estate has generated steady cash flow and yields well above the traditional sources of return. However, this reality has changed since the outbreak of the virus.
If you’re planning to sell or buy a house, all the uncertainty might have made you worry about the housing market. Is COVID-19 going to cause housing to collapse, as it did during the 2008 financial crisis?
Zillow conducted a study about housing during previous pandemics. They concluded that while home sales dropped dramatically during the outbreak, home prices remained almost the same or had a very small decline. This makes sense as it is more difficult for prices to change when there are few transactions. In short, previous pandemics had simply put the housing market on hold.
The UK property market in 2020:
In the UK property market in 2020, optimism briefly returned to the property market following the December general election, with sales rising by more than 12% in January as buyers and sellers a awoke from a slumber-induced breeze.
But now the market is undergoing a significant slowdown, with estate agents closing their doors while the residents of UK have been told to stay at home and to set aside their plans to move.
Zoopla says that this situation could lead to house sales downfall as much as 60% in the second quarter of the year, if we compare it to the same period in 2019. Property portal claims that the purchaser’s demand dropped significantly before the lockdown, with the ‘quickly growing’ share of sales falling.
These sentiments are echoed by the estate agency Knight Frank. It predicts that the number of UK house sales will fall from the 1,175 million recorded last year to just 734,000 this year.
Effect of COVID-19 on House Prices:
It is too early to say exactly what impact the outbreak will have on the property market, but this is likely to mirror the rest of the economy.
Knight Frank predicts that UK prices will fall by 3% this year, but will then rebound by 5% in 2021, in line with the economy-wide forecast that is shrinking this year.
Rightmove says that three things will be needed to kick-start the market after the lockdown: a continuation of low-cost mortgage lending and government incentives, lenders limiting forced sales, and safe and innovative house viewing procedures.
People currently in the process of moving home face uncertainty as to whether their deal is going to go through. The government has urged people who have not yet exchanged contracts to put their plans on the ice.
Changings in Mortgage rates
The good news is that it’s a great time to get a mortgage, if you can get through to a lender, that is. Mortgage rates are currently very low, but banks and construction companies have removed hundreds of products from sales as they adapted to the coronavirus impact. There are now signs that more products are back on the market.
The data shows that buyer demand, or demand from sales ‘applicants,’ has dropped 70 per cent since 7th of March – the date when concerns about the virus really began to affect consumer activity.
But we are expecting the demand to pick up again once the physical restrictions have been eased.