Will the UK Property Market Recover from COVID-19?
From unprecedented lockdown measures to professional and commercial life coming to a standstill, COVID-19 has changed life for everyone across the UK. The UK property market was just one of the many industries forced to cease operations while curbing the spread of the virus was a priority.
The amount of damage caused by the pandemic has encouraged players within the UK property market to think ahead about what house prices, consumer behaviour, and buyer and seller confidence will look like in a post-COVID-19 Britain.
Continue reading as we answer the question: will the UK property market recover from COVID-19?
What was the UK property market like before COVID-19?
The UK property market was stagnant for most of last year, following the economic uncertainty of Brexit. But, by November and December house prices across the nation had seen a modest annual increase of 1.4%.
After 12 successive months of annual house price growth below 1%, the strong results from November and December 2019 suggested a healthy UK property market for 2020. Between January and March 2020, Scottish house prices increased by 1.5% while English house prices rose by 2.2%.
The property market seemed to be getting back on its feet after a rocky 2019…at least, until COVID-19 struck.
On the 23rd of March 2020, the UK government announced lockdown restrictions that brought the UK housing market to a grinding halt, creating a sharp drop in house prices across the country and shifting consumer sentiments in unprecedented ways.
How did COVID-19 affect the UK property market?
Lockdown measures are having a sizable, immediate impact on real-time economic activity. In response to the pandemic, new government health and safety procedures like ‘social distancing’ were introduced to control the spread of the virus, which placed much of the residential property sales market on-hold.
While the UK property market got off to a good start in 2020, by June 2020 – and after 70 days of lockdown – the average house price in the UK experienced the biggest monthly drop since February 2009 as a result of COVID-19. According to the May 2020 Nationwide House Price Index, the annual UK house price growth slowed to as much as 1.8%.
House prices tend to drop when the economy shrinks as a result of falling output. Typically, it’s the domino effect of higher unemployment and borrowing costs which sometimes forces people to sell their properties.
However, during the COVID-19 pandemic mortgage interest rates remained at their lowest level ever. Mortgage payment holidays and government support for businesses across the country stopped most people from being forced to sell their properties.
Historical annual house price data shows that UK house price growth has fluctuated since the 1970s, but most price falls tend to be relatively short-lived unless followed by a full-scale recession. So, the biggest long-term effects on UK house prices from COVID will largely depend on how long the property market is disrupted and the fallout of any longer-lasting wider economic impact.
A Shift in Consumer Behaviour and Priorities
For many consumers, COVID-19 has made health, safety and wellbeing a much larger priority in almost all aspects of life. With estate agencies being forced to close and physical property viewings unable to take place, the property market was inactive during the stricter phases of lockdown.
As the economy starts to re-open and along within the UK property market, it’s important to question whether there’s been a shift in consumer behaviour and priorities for buying a new property?
After spending weeks at home, home buyers may place greater importance on homes with an outside space or garden area. If they can’t afford a private outdoor space, home buyers may also place greater value on properties near public green spaces. In fact, 80% of those who work within the property industry say that demand for a property with a garden will grow significantly over the next 2 years post-COVID-19.
With 60% of the UK’s adult population being forced to work from home during the COVID-19 lockdown, house buyers may also place greater importance on homes with studies or separate work spaces. Having a home office space with fast broadband speeds is now a bigger priority for more consumers.
Buyer and Seller Confidence
According to a study conducted by OJO Labs, COVID-19 has profoundly affected property buyers and sellers’ confidence. Financial uncertainty and social distancing measures have removed the illusion of control from buyers.
As a result, over half of buyers are delaying – or even stopping – purchasing property because their financial future and employment status is so uncertain. On top of that, 49% of buyers feel uncomfortable and that it’s simply too risky to rely on virtual tours and photos when buying a new home.
Real estate agencies and the property market reopened in England on 14th May 2020, which means sellers can conduct in-person house viewings once again. But, even as the English property market gets moving, a level of unpredictability still remains across the UK.
In Scotland, compulsory home reports help to boost buyer and seller confidence by providing greater certainty about timescales, a purchase price, and detailed information about the condition and value of the property. During times of prolonged uncertainty, the home report are an especially important tool.
What Lessons Can Scotland Learn From the Reopening of the English Housing Market?
With the English economy and property market reopening before the rest of the UK, it’s important to consider the lessons Scottish house buyers and sellers can learn from when Scotland’s property market reopens.
The Scottish property market is anticipated to reopen on Phase 2 of the Scottish Government’s COVID-19 route map after the formal review on 18th June 2020.
Lesson 1: The English Market Bounced Back to Pre-COVID Levels as the Market Reopened
Once the property market reopened in England, there was a surge in interest from buyers. New government regulations allowed English buyers and renters to once again view properties physically, arrange removals and move home.
Rightmove reports that 40,000 new sales have been agreed since the English property market resumed on 13th May 2020, with buyers agreeing on average to pay 97.7% of property seller’s asking prices.
Sellers are more tentatively returning to the market in England than buyers, but experts believe house prices could fall this year once again as economic uncertainty continues in the wake of the COVID-19 outbreak.
While the outlook for the housing market is still taking shape in England, Scottish house prices and property market could expect to see a similar initial boom once lockdown restrictions ease and the market reopens.
Lesson 2: Unemployment & Lending Levels are a Key Market Indicator
A significant increase in unemployment is likely to encourage quick sales up and push house prices down. However, the exact impacts will differ across specific geographies and markets.
Rettie & Co’s report also argues that lending will be one of the key market indicators as the Scottish property market reopens and recovers.
While there are restrictions in place around mortgage lending and doubts about future valuations, there are no structural market issues and the lending market was not over-stretched going into COVID-19. So it’s unlikely the impacts will be as long-term or long lasting as during the 2008/9 financial crisis.
Lesson 3: Safety Must be a Priority
Despite lockdown restrictions easing in England and the property market reopening, the threat of COVID-19 remains so consumer and employee safety must continue to be a priority going forward.
In England, pre-COVID property buying and selling procedures have been adapted to meet government guidelines and protect consumer health.
Both sellers and buyers are encouraged to be as flexible as possible, altering usual practices and agreeing on alternative dates to move and view properties if necessary. Before viewing a property, the estate agent or seller must also confirm that viewers have appropriate protective equipment.
While COVID-19 continues to pose a threat, buyers and sellers in Scotland should expect similar health and safety precautions to be taken once the Scottish property market reopens.
What could the UK property market look like after COVID-19?
While COVID-19 still remains an ever evolving issue, it’s still unclear whether house price levels will drop, rise or stabilise.
With that said, based on UK-wide government measures implemented to support business and initial consumer response to the reopening of the market, house pricing levels will by and large pick up from where they left off at the start of March when lockdown restrictions ease. As we move towards our ‘new normal’ we’re very optimistic that the Scottish property market is showing signs of a strong bounce back.
“Even with the changes that we have come to see in the Scottish housing market we are delighted to have seen a substantial increase in enquiries from buyers and sellers anticipating a return back to normal.“If you have any questions about buying or selling property in the post-COVID-19 market landscape give us a call 0131 608 0175 or email firstname.lastname@example.org.
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