4th May, 2020
The coronavirus pandemic has caused considerable disruption to the economy, business and people’s lives. Some of that disruption will be short term, whereas in some instances, the impact could be longer and more structural in nature. The UK residential property market has certainly not been immune to the considerable turmoil caused by the pandemic, but can we expect a ‘bounce’ from pent up demand when the lockdown restrictions are eased, or a more gradual return to a level of ‘normality’?
Ahead of the lockdown, the property market was enjoying a resurgence after the General Election, with both demand and confidence building. Up until mid March, data from Rightmove suggested the housing market was performing well, with asking prices reaching an all-time high and agreed sales achieving the best volume since 2016.
That all changed very quickly with the escalation of the pandemic and the country going into lockdown. Essentially, but understandably, the housing market largely ground to a standstill. Just a couple of weeks into lockdown, data from the RICS residential property market survey showed that 87% or surveyors had seen a fall in enquiries and 86% had seen a fall in instructions to sell. Additionally, the pandemic had an immediate and adverse impact on consumer confidence, with the GfK consumer confidence index quickly dropping to levels not seen since the Global Financial Crisis (GFC).
Notwithstanding these unprecedented circumstances, buyers and sellers are proving to be incredibly resilient. Data from Zoopla shows that 373,000 sales were placed on hold at the beginning of lockdown, equating to nearly £82 billion worth of transactions. While most seem to be holding firm, it is inevitable that a proportion of transactions will fall through as buyers seek to renegotiate prices, the financial or personal situations of buyers and sellers change, or people simply change their minds. But the considerable majority of transactions appear to be progressing towards completion, with 68% of estate agents reporting that the vast majority of buyers remained committed to their purchases. Indeed, just 1% of agents have seen the majority of their purchasers withdraw from their transactions.
With some light at the end of the tunnel and lock down restrictions potentially easing over the coming weeks, what does the outlook for property transaction volume for the balance of the year look like? The team at Dataloft have modeled potential scenarios, with their ‘middle scenario’ based on assumptions that:
- Some elements of lockdown will lift from June onward - with activity in June reaching 40% of normal for that time of year.
- New sales will start to be agreed over the summer, and gradually rise to more normal levels in October and beyond.
- August will be the busiest month of the year for agents and those involved in the conveyancing process as they process a combination of delayed transactions and new sales agreed post-lockdown.
In summary, it is estimated that just under 880,000 property sales will complete in 2020, representing a 25% fall on 2019 levels.
With transactions at low levels, it is understandable that questions are being asked as to what might happen to house prices.
In general, it is believed that there will be no significant downward price pressure. For prices to collapse, the market would need to be flooded with forced sellers. With mortgage holidays offered by the banks, the furlough scheme (for both the employed and self-employed) and other financial support for businesses and the economy, a cushion of support is buffering many households.
On the demand side, data shows that there were many active buyers before COVID-19, and this pent-up demand will likely spill into the market in the summer months. Buyers will additionally benefit from historically low interest rates.
The return to a level of normality might happen gradually and recovery take some time, but confidence will return. It always does.
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