UK Market Outlook post Coronavirus

The world has changed inescapably over the past few weeks – for all of us. Whilst no one can fully anticipate what will happen to the market and prices after all of this, there is clearly going to be an impact as transactions have stopped and according to Capital Economics’ April report the UK property market is on track to see a 70% fall in sales this quarter.

What happens next depends on how long lockdown continues and how quickly we get back to a new ‘normal’. We are unlikely to emerge unscathed, but I do believe that the effective market freeze is likely to mean pent up demand when transactions can go through. Fundamentally, there is still not going to be enough supply to meet demand, and supply could be further restricted as I imagine many housebuilders will sharply cut back on construction for the next quarter or more. In addition, as we are seeing directly, local authorities are struggling to process planning approvals.

There was already a shortage of property across the UK. The UK population is projected to pass 70 million by mid-2031 (Office of National Statistics) and according to Knight Frank

‘between 2019 and 2030, the number of households in the UK will rise by 1.8 million’.

Only 240,000 homes were added last year – 20% less than the government target of 300,000. Granted, job losses and a fall in GDP will inevitably have an impact in reducing demand (and affordability to borrow) in certain areas, but the imbalance of supply vs demand has no imminent solution. As we saw with Brexit, the UK property market is both robust and resilient. I find it highly unlikely that prices will nosedive in the coming months. If they do fall marginally in the short term, they should bounce back, and we should see some of the positivity from earlier in the year returning by the end. However, the timing will naturally depend on how long ‘lockdown’ lasts, and the effectiveness of the stimulus from Government to support businesses and households.

We should expect the UK Government and lender action to suspend mortgage payments and support businesses to reduce the number of forced quick sales that could drag house prices down. Also, once the smoke clears, my guess is that most sellers will hold on vs. accepting large price cuts which should keep prices stable. In addition, I can see more incentives being offered by house builders (in particular for new build) and a greater focus on Built to Rent – including more of an emphasis on affordable housing. Help to Buy, which was to be capped from this time next year could well be extended as a result of the current situation.

Importantly, it also seems likely that many people, who have been stuck in their home for a month or more, will aspire to move to a bigger/better home and seize the moment as soon as restrictions are lifted and the market starts to open again. With transactions halted for the meantime in the interests of everyone’s safety, it can be argued that residential property really is at the forefront of our minds when forced to stay inside it! Our houses are no longer just a ‘home’ but also places of work, rest, play and shelter!

Both Savills and Knight Frank recently published reports focused solely on COVID-19 and what they think will happen with the market. Both make some interesting observations.

Although many mortgages have been paused, the good news is that post-pandemic should be a good time to get a mortgage – interest rates are at a record low (0.1%) and likely to remain that way for a while 'Oxford Economics predicts rates will remain at this level until Q3 2021 and only reach 1.5% by the end of 2024!'

With volatility in equities and global stock markets, I don’t think it will be long before people start looking for more secure and fixed assets to invest in such as property – where the value cannot be wiped/lost overnight. As the above Savills report states

‘The perceived security of a bricks-and-mortar investment in times of uncertainty should help underpin values.’ 

We have already seen a marked increase in enquiries coming from investors based in Asia (particularly Singapore and Hong Kong) looking to capitalise on the weak GBP as they start to come out of the other side of the current situation.

It may be a bit optimistic to say the market will ‘bounce’ back but in my opinion there will be a short-term buyers’ market followed by a return to modest growth. As echoed by the Hometrack House Price Index Report recently

‘fifty years of history shows that external shocks and global events tend to impact levels of housing market activity more than prices in the short term.”

In the meantime, I wish all our clients, partners and all those affected by (and especially those helping us fight) COVID-19 all the best. All we can do is stay inside, look after each other, make sure we are following Government advice to help us return to normal life as soon as possible, and maybe take up a hobby… I may even join my wife for Zoom yoga!

Supporting the people supporting us

As you may know, a number of years ago my wife and I founded the Frontiers Foundation, whose aim is to have a direct and tangible impact in individual communities across the globe.

At this time, there seems no bigger or tangible impact than to support those on the frontline of this global crisis and with that we have decided to donate the Foundation's efforts towards two charities - to support our #nhsheroes and #healthcareheroes global efforts towards protecting those on the frontline.

If you would like to support either of these efforts, I've included links below to their fundraising pages:

Duty to Care - Providing support via online consultation to improve and sustain the mental health and wellbeing of healthcare professionals.

Global Empowerment Mission - Working directly with manufacturers to ensure the necessary items are sent to people and hospitals across the United States.