Coronavirus: Its after-effect on the UK Property Market

Published 24th April 2020

As I write this update, we are 32 days into lockdown, with another 13 days we already know about yet to come.

Aside from the core motivations of protecting ourselves and the NHS – it feels these first 32 days have been very much about learning to adjust. Our lives, our businesses, the way we work, the housing market, absolutely everything, has been turned upside down.

Many have had to make quick decisions in order to respond to the situation but without full access to information that in some instances still doesn’t exist.

So what will be the after-effect on the UK Property Market?

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Settling into lockdown

Thirty-two days in, we are now more ‘settled’ in our lockdown situation.

Government help is starting to come through, businesses have made their decisions on whether to furlough staff and routines are being established both at work, school and home. We are where we are.

My thoughts over the last few weeks have been with the people who were already in a property transaction when this all kicked off.

On top of everything else going on in the world it will have been an extremely stressful time for them. Government advice to delay completions was well-intentioned but very hard to follow in a chain of transactions with many variables and moving parts.

However, 32 days in I’m hoping people in these extremely difficult situations have been able to sort things out. They might not like the result, but at least they know what it is.

So, now in this ‘settled’ phase I started to ponder what the housing market might look like after lockdown. How is the pandemic likely to affect things going forward?

Opinions from within the property industry

I have spoken to surveyors, mortgage brokers, lawyers and estate agents around the country to gauge their opinions. How do they see things panning out in the future? (see Move iQ YouTube channel). On the whole there was an air of positivity. The general feeling was very much, although it may take some time, things would return to ‘normal’.

Mortgage payment holidays, government support for businesses, furloughing etc would see us through.

After the current period of the market being in suspended animation, the feeling was that activity levels would return, values would be back where they were, the banks would be keen to lend, mortgages would be cheap. Whilst there might be higher levels of inflation, we’d all basically just carry on where we left off. There is currently much talk in the press of the downturn and subsequent recovery expected to follow a V- shape.

I may have been studying the housing market for 25 years, but I am certainly no economist. I also don’t have any better a crystal ball than the next person, but personally I don’t see it.

Will there be a housing market?

While I understand the UK housing market is very robust, we already have a housing shortage and we don’t build anything like enough new houses each year to ease that. We live on an island and we have an increasing population (yes – that is still true).

There are also, three main drivers of our housing market, The Three D’s– death, divorce and debt. I think we can all just accept there’s going to be plenty of all of those around.

So – yes – there will absolutely BE a market.

But what history tells us is when our economy shrinks as a result of falling output, it has a knock-on impact everywhere else. Especially in a housing market that has always been affected by consumer sentiment.

What has NEVER been seen before in history is what happens when the whole world’s economy goes into free fall all at the same time.

What will the housing market look like?

The UK furlough scheme lasts for 3 months and the government aid packages during that time will total £330 billion! And let’s just remember the Treasury will be collecting precious little in revenue during those same three months.

Other economies around the world are not as strong as ours is/was and most countries have nothing like the level of government support we do. But whichever way you dress it up – we have to expect a global recession. Businesses right across the world will go bust which means people will lose jobs.

For as long as I can remember, London has been flagged as the ‘driving force’ behind the rest of the UK’s housing market. The accepted adage is that whatever happens in London gradually reverberates around the rest of the country.

London is very much a global city. Its housing market massively influenced by the global economy. With much of Londons’ price growth driven by overseas investment, the market has become somewhat divorced from the UK economy. The lights will be out across whole areas of prime London tonight, even in this lock-down. Surely that’s a tragedy for the communities of our capital city?

Its safe to assume foreign investment isn’t going be inbound for a little while. In the long-term this could be considered a good thing. However, there will be ripple effects felt around the country.

But then again, might it actually be quite nice if the cost of housing was more around 5-6 times annual earnings rather than 15+?

The total residential mortgage debt in the UK is circa £1,100 billion. The total value of our housing stock is around 5 times that number – so there’s a fairly large cushion of equity. Admittedly the majority of this would be held by the older generation.

What’s happening elsewhere?

While I’m not convinced on all the USA’s policies on dealing with coronavirus, as a forward indicator its interesting to see that realtors (estate agents) in several US States, are deemed key workers and allowed to function. Albeit in a very controlled way.

There’s no open houses, 4-people maximum in a house, all wearing PPE (Personal Protective Equipment). Sellers must also vacate the property beforehand. They must leave lights on and open cupboards, so nobody has to touch anything. All parties are required to sign disclosure forms confirming they are fit and well to attend a viewing.

Suddenly something as basic as viewing a property becomes a logistical challenge every time. I suspect this will be the new norm for 6-12 months. We don’t know what we don’t know. However, one thing is for sure, life after lockdown in the housing market will not be what we knew before.

At the end of the day, the scale of the impact on house prices depends upon what you perceive to be the scale of the economic impact from coronavirus.

A lot will depend on how long this disruption to the economy will last, how quickly restrictions can be relaxed, and how long it takes to rebuild consumer confidence. What is meant by ‘best place to live‘ has definitely seen a shift for sure.

Watch this space!

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Last Updated: September 22nd, 2024