Will the coronavirus epidemic harm UK property prices?
With current turbulence in equity markets, some investors who sold out of stocks and currencies last week are looking around for alternatives. UK property, which has been severely depressed due to the uncertainties around Brexit last year, looks like it could be one of them. UK house price growth continued its upward trend in the months immediately succeeding the election – in January UK house prices were up 1.9% year on year.
This was the largest increase in 14 months and beat December’s number of 1.4%.
At London estate agent Benham & Reeves, there is notable new interest in the market. It reports a higher total number of transactions so far in Q1 than in the past 112 months, which represents a dramatic upswing in interest. It is a trend being seen elsewhere in the housing market.
“Investors should be looking at fixed-return and less risky alternative investment options,” says Yann Murciano, CEO at BLEND Network. “We have already seen investors liquidating their equity positions and looking for alternatives that provide steady yield.”
BLEND Network is a peer-to-peer property lending marketplace that connects lenders directly with borrowers and focuses on lending to established property developers. Lenders can lend from GBP 1000 to property-secured loans and earn up to 15% p.a.
Murciano thinks that the coronavirus will undoubtedly affect the London property sector, but says the worst of the impact will be restricted to the international buyer and luxury property market focused on Prime Central London real estate. Outside the capital, property prices are less volatile and he sees a growing pool of local, specialised developers who can deliver projects with strong investment potential.
There is still a shortage of housing supply in the UK
The UK continues to suffer from an under-supply of low cost housing and there are now a number of funds and platforms that are addressing the appetite from investors for strategic allocations into that sector.
But what sort of impact can we expect from coronavirus on the UK property sector?
The Royal Institute of Chartered Surveyors (RICS) has polled surveyors in the UK, asking them about what they expect to see in terms of the effects of the virus. Activity in the housing
market was up in February, but much of the economic effects of the coronavirus have really only been felt since the beginning of March. It may be we see a delay of sellers putting houses onto the market at the same time as buyers and investors are looking for new opportunities.
The recent decision by the Bank of England to cut rates should not be discounted either. This will make mortgages cheaper and with the additional and very dramatic stimulus measures announced, will have a positive effect on the UK economy in the medium term. This could create a situation where we have more buyers than sellers in this market, with knock on consequences for house prices.
Another factor has been the introduction of stamp duty at 2% for overseas buyers of UK property, announced in the UK budget last week, which will apply from April 2021. This will apply in England and Northern Ireland and is intended to take some of heat out of UK property from foreign investment. That said, it means there is now a closing window of opportunity for foreign investors in UK property. This could create demand at a time when the property market would otherwise be running out of steam.