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Coronavirus and house prices: how the UK housing market could be affected by the outbreak and lockdown measures


High house prices and economic downturn? We’ve been here before. How we navigate this will have serious implications for us all

By Vicky Spratt

Sinead Burns, a 30-year-old PHS student, was about to buy her first home in Belfast with her partner, who works for BT, before the coronavirus crisis. Together they have a combined income of £45,000 and had managed to save a 10 per cent deposit towards the £95,000, four-bedroom home.

They had a mortgage offer in place. However, because of the global pandemic, the British government has now effectively suspended the mortgage market after calls from banks to freeze lending so Sinead’s dream is now, like so much of our lives, on hold.

“Our solicitor informed us last week that the sale won’t be able to progress as a result of Covid-19,” Sinead explains. “We cannot submit any paperwork like deeds and things to complete the sale. We have been left in limbo."

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Sinead and her partner
The Government’s decision to advise against all home moves came last Thursday after it’s understood talks took place between ministers and banks who were concerned about the impact the crisis would have on property values.

David Hollingworth, associate director of communications at broker L&C Mortgages, told i the housing market is entering “something of a state of suspended animation” due to the practical difficulties that lockdown measures pose for buying and selling. Surveyors cannot visit properties to conduct valuations, for instance.

“The mortgage market is trying to adapt to the changing situation, which has presented lenders with several challenges,” he explained. “Huge call numbers from concerned existing borrowers enquiring about the payment holiday options has seen lenders having to respond rapidly and many have now developed online applications to help customers. At the same time, lenders are facing the same resource issues that many businesses will be facing with depleted workforces.”

While this move may shore the mortgage market up during this period of uncertainty, it will directly impact the finances of people like Sinead who were expecting to move into a new home imminently.

“Buying a house was the single biggest and most important thing that we’ve ever done,” Sinead tells i. “We have rented for years and we just really wanted some financial security. We saved for a long time and put off big life events like getting married and having children so we could buy a house. We were looking forward to finally being able to plan for the future but now we’re struggling to plan for the next couple of months.”

Sinead and her partner are now staying at a friend’s house with their two dogs. Their lender, the Progressive Building Society, has also put their mortgage offer “on hold” for three months. “It is really stressful,” she explains. "It feels like things are changing almost daily which makes it difficult to make sense of anything. It’s worrying both in terms of finance and because we now need to potentially rent for a period of time, which we didn’t plan on doing.”

They are not the only ones who find themselves in a state of suspension. In London, 37-year old Sarah is currently living with her ex-partner in the two-bedroom flat they bought together three years ago for £395,000. They had planned to sell it and go their separate ways before the pandemic.

“I’m a freelancer working in marketing,” Sarah tells i, “so even if the market wasn’t frozen I would struggle to get a mortgage on my own right now - we’re completely stuck. I had hoped we would be able to sell it for £450,000 and I will need the money to move forward as a single person, so I can’t really afford for prices to fall.”

Lending restrictions and prices

Housing expert and buying agent Henry Pryor says people are right to be concerned by all of this uncertainty.

“Will mortgage offers made before March still be valid in July? Will mortgage holidays or rent deferment be excluded from credit reports? Will people be able to borrow without a 40 per cent deposit? These are the sort of questions I am being asked often by people who can see their dreams of a new home evaporating before their eyes,” he tells i.

Moving forward, Pryor warns we may see greater lending restrictions. “Millions will be living off 80 per cent of their previous earnings, some will be looking for and starting new jobs which may not pay as well as their pre-Covid-19 jobs did. They may, therefore, not be able to borrow as much, and if they can’t borrow as much then the price they will be able to pay for the next house will be less, which could result in lower house prices overall,” he explains.

Pryor adds that, ultimately, “the good news is that one house will still be worth one house. The bad news is that much of the rest of the housing market could be in a pretty ragged state and what happens to the mortgage market will determine just how ragged it becomes.”

More going on than staff shortages

So, there is more going on here than staff shortages in the call centres of mortgage lenders. During the talks last week, there was also concern amongst lenders about approving borrowing at a time when people may yet lose their jobs and the economy is effectively in an indefinite state of freefall.

They are right to be concerned. Northern Ireland is actually one of the few places in Britain where house prices fell in the last decade, only rising again last year. However, elsewhere, we have seen house prices continually and consistently outpace wage growth, stretching people to the limit of what they can afford to borrow in many parts of the country. According to the Office for National Statistics, the median price paid for a home leapt by 259 per cent between 1997 and 2016, while earnings only rose by 68 per cent.

As a result, we have found creative ways to encourage people into more and more debt to sustain an unsustainable housing market where earnings have not kept up with the cost of homes. There has been a return of 100 per cent and 95 per cent mortgages to the market as well as government-backed equity loans like Help to Buy, which effectively underwrites borrowing and unaffordable house prices in order to keep the purchase market moving.

When Lloyds Bank announced their new 100 per cent mortgage last year, there was - perhaps rightly - outcry. We hadn’t seen 100 per cent mortgages since the financial crash of 2008 and we shouldn’t forget that it was subprime mortgages - where people had borrowed more than they could afford to repay - in the US which helped bring about that crisis in the first place.

'If credit becomes harder to get or it becomes more expensive then house prices fall' - Henry Pryor

There is a common misconception that house prices are dictated by supply and demand. That is not the case. They are sustained only by the cost and availability of credit - by people’s ability to borrow money to buy a home.

“If credit becomes harder to get or it becomes more expensive then house prices fall,” Pryor says. “I’m pretty sure that we all accept that some of us will be earning less, at least in the short term, and it remains to be seen whether banks want to keep interest rates down - indeed inflation may be something that helps get us out of the financial mess, as it has done before.”

The coronavirus pandemic is forcing the scales from all of our eyes. Concerns about the gap between people’s wages and the cost of housing are not new but, as precarity becomes the new economic norm because of Covid-19, we can no longer ignore that affordability has been stretched to its limit in the housing market. High house prices and economic downturn? We’ve been here before. How we navigate this will have serious implications for us all.

Vicky Spratt is i's Housing Correspondent

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