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Official house price index suspended but Bank warns of 16% drop


By Graham Norwood

Official house price index suspended but Bank warns of 16% drop
The government has temporarily suspended its official house price index as a result of the Coronavirus crisis.

In a long and far-reaching announcement at the end of last week, covering all aspects of the economy’s downturn since the virus took hold, there Bank of England explained that housing market activity had effectively been frozen.

“House price statistics are particularly affected by the current situation. The number of transactions in April is expected to have been much lower than normal making it very difficult to estimate meaningful average price statistics. As a result, the Office for National Statistics plans to temporarily suspend publication of the UK House Price Index after March’s figures have been released” stated the Bank.

The same announcement also warned that a stress test by the BoE suggests house prices could fall by as much as 16 per cent because of the crisis.

That decline would be in line with the fall in residential property values during the 2008-9 credit crunch.

On the plus side, the BoE assumes prices will then rise systematically as economic activity recovers and unemployment falls.

The Bank’s announcement came hours after the latest private house price index - from the Halifax - revealed a 0.6 per cent fall in April. This in turn slowed the annual rise to 2.7 per cent.

“The limited number of transactions available means that calculating average house prices has inevitably become more challenging … This will lead to a great deal of volatility until more data becomes available” warns Halifax managing director Russell Galley.

“It will not be until after lockdown restrictions are eased that we will get a sense of the new temporary normal conditions for the housing market. Social distancing raises new challenges for home viewings and valuations and this will require the industry to adapt to build and maintain consumer confidence” he adds.

Jeremy Leaf, a north London estate agent and a former residential chairman at the Royal Institution of Chartered Surveyors, comments: “What we are seeing on the ground are previously agreed sales proceeding to exchange and completion without price renegotiation and a buildup of browsing interest as buyers and sellers ready themselves for easing of restrictions.

“Buyers and sellers are also taking advantage of interest rates remaining low for the foreseeable future. Overall, we are being told that transactions are stalled and will be revisited as soon as it is safe to do so.”

And Ben Johnston, director of property app Houso, said: “People will still want to move once the crisis passes but the way they interact to find those homes and negotiate on them will be different.”

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