House prices won't return to normal in 2020
The effects of the Covid-19 pandemic on house prices will be stark, warn property experts
(Image credit: Getty Images)
BY ANNA COTTRELL
Will UK house prices recover from the Covid-19 lockdown? With the lockdown measures extended, the property market remains in stand-by mode, with mortgage approvals put on hold, and the number of property transactions having plummeted to the point where Rightmove were unable to produce their monthly house price index in April due to the lack of data.
This doesn't necessarily mean that demand for homes has fallen, with the current situation artificially created by the lockdown. Having said that, how house prices change over the coming months will have little to do with demand and almost everything to do with unemployment levels and the extent of the predicted economic downturn.
According to The Centre for Economics and Business Research (CEBR), supported by research carried out by the Cambridge-INET institute, there will be a 35 per cent reduction in income for UK households, and the economy will shrink by a third, which will lead to a 13 per cent reduction in house prices by the end of 2020.
This is a contraction on a scale beyond anything we saw during the four years leading up to Brexit. According to Kate Faulkner, property analyst and expert at Propertychecklists.co.uk, there is still some room for variation, depending on how and when we exit the lockdown:
'The effect on house prices will be determined not just by how bad things get economically, but most importantly how long it goes on for. Scenario one could be a "short, but very sharp shock" and if we get back on our feet, prices may fall slightly – more if an area is particularly badly affected.
'Scenario two would be a longer impact with prices falling maybe 10 per cent or more due to unemployment and difficulties accessing finance.
'Scenario three could be back to the days of the credit crunch where a recession hit hard for several years and prices fell by around 20 per cent, more in some areas.'
With the most recent government announcements quashing hopes of a speedy exit from lockdown, scenarios two or three, or two followed by three, seem increasingly likely. If there is one group that will benefit from the aftermath of the pandemic, it'll be cash buyers. Kate comments:
'[W]hat we do know is that even in a recession, people still need to move and over 50 per cent of people in England own their home outright, so can continue to buy and sell with cash. Whether you decide to move this year or not very much depends on your local market and your personal circumstances.'
Some experts are predicting a significant decline in property transactions throughout 2020, potentially even late into the year. The Zoopla House Price Index estimates a whopping 60 per cent decline in the next quarter. This means that both buying and selling will slow down dramatically.
Again, this doesn't mean that no one will be buying and selling, but if you are a potential buyer, be prepared to be more flexible as there is likely to be less choice. Prospective buyers should still take in heart: once lenders restore their full range of mortgage offers, there will good mortgage deals available; in combination with lower house prices, those who are in a position to buy a home may well see a more affordable market.
Take a look at online mortgage expert Habito's mortgage comparison tool below to get an idea of how much you'll be able to borrow.