London house prices:coronavirus leads to drop in property values and plummeting sales
Knight Frank predicts a drop in London house prices this year, followed by a relative bounceback next year as pent-up demand is released
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The coronavirus lockdown is set to send home sales plummeting this year, with London house prices also expected to drop — putting a swift end to the market optimism that followed the decisive Tory election victory last December.
In the first official forecast released by a major estate agent, Knight Frank severely downgrades the outlook for the property market this year, saying there will be more than half a million fewer homes sold in the UK than previously predicted.
House prices are expected to fall by two per cent in London after the bounce seen at the start of the year, as would-be buyers are prevented from viewing properties in person, in line with stringent restrictions on all but essential activity outside the home.
Transactions that were already in process have been put on hold as valuations, surveys and home moves are ruled out for the foreseeable future.
What will happen to house prices next year?
However, Knight Frank expects activity and prices to stage a recovery next year as pent-up demand is released.
Liam Bailey, global head of research at the property consultancy, said: “The housing market was in a strong position in January and February.
"A sharp uptick in sales and price growth was seen across the UK, with even the prime central London market seeing a reversal of a five-year price decline.
“While we expect a revival in activity to continue, with volumes next year expected to be 18 per cent above the level seen in 2019, this expansion in sales in 2021 will not fully offset the losses seen this year. Meaning that of the nearly 526,000 sales we expect to be ‘lost’ due to lockdown this year, less than half will be carried into 2021.”
The figures in the report are based on the assumption that the UK will experience total lockdown until May, easing gradually from June, with the “relatively finite” nature of the crisis meaning house price falls should be only short term. The report predicts an upswing of six per cent across the capital next year, and up to eight per cent in prime central London.
Edward Heaton, of buying agents Heaton and Partners, said activity in their central London office, which is driven entirely by international buyers, is on pause at the moment due to global travel restrictions — meaning a drop in house prices over the next six months or so is all but inevitable.
However, he believes Chancellor Rishi Sunak’s three per cent stamp duty surcharge for foreign buyers from April next year will likely encourage international clients to invest in the “safe haven” of London property before the new tax is enforced.
Coronavirus is also likely to bring buyers a greater choice of homes for sale once restrictions are lifted, said Heaton: “We are likely to seen an increase in stock over the next few months — as a result of coronavirus, sadly. We can expect probate sales; data from China suggests we’re likely to see an increase in the divorce rate from people who’ve been stuck together for all this time. And because of the pain that some people will be going through, they’ll be selling because of debt.
“So you’ve got the three Ds coming together, feeding a market that’s been starved of supply for a few years now. I agree with Knight Frank that there’ll be a relative bounceback next year.”