Will house prices fall after lockdown? Rightmove’s expert advice on how coronavirus will affect the property market

The ban on viewings and house moves as part of coronavirus lock down has brought the UK property market to near-total standstill.

Anyone who was thinking of buying or selling a home before the pandemic hit will be wondering how the market is going to look, as we all figure out what the “new normal” is after Covid-19.

If you were in the middle of a sale, should you now ask the vendor for a discount on the property you are hoping to buy? If you’re selling your home, should you accept a lower offer before prices plummet?

Will house prices fall after lockdown?

One of the best ways to judge how much a property is worth is to see what is being asked for similar homes, or how much they have sold for recently.

Monthly house price reports from such data sources as the Land Registry and Rightmove are the best tools for this, offering an overview of thousands of homes for sale.

However, with the market on hold for the foreseeable future, these indices will take months to offer enough data again, as Rightmove’s Miles Shipside pointed out in a webinar led by the property portal.

The housing market commentator said it’s particularly difficult to predict whether house prices will fall and by how much because the nature of the current crisis is different to previous downturns we’ve seen, being caused by global health, rather than economic circumstances.

How will coronavirus affect house prices and the property market?

The 2008 house price crash was in part caused by tough restrictions on borrowing: “One of the reasons it was called a credit crunch was because it was hard to get credit, you needed a 40 or 50 per cent deposit to get approved for a mortgage.”

Combined with higher interest rates, this meant there was more negative equity and a greater number of repossessions, causing house prices to fall, along with a steep rise in unemployment and wage stagnation, leaving many would-be buyers unable to capitalise on cheaper house prices.

By comparison, Shipside pointed out that a combination of pent-up demand, which has been building for the four years since the EU referendum, and freely available mortgagesat low rates, as well as a fairly even balance between supply and demand are likely to see house price growth settle before potentially returning to the gentle increases seen since December’s resounding Tory general election victory.

He said: “I think as we leave lockdown we’ll see a relatively benign flat period. I can’t see the forces that would usually drive house prices down at work at the moment but I do think there’ll be a slow-motion period where people get used to the new social distancing rules, and where housing might not be at the top of everyone’s list.

“I think this might last for several months but my gut feeling is that, after that, we’ll see a continuation of upwards price pressure once people get used to social distancing.”

Separate forecasts made this month by estate agents were slightly more pessimistic in the short term, although all agree house prices should rise again by 2022. Knight Frank estimated that more than half a million home sales would be “lost” this year, pushing prices down by two per cent. The agent expects buyers to return to the market next year with a more significant boost in 2022.

Revising their five-year forecast, Savills said house prices could fall between five and 10 per cent this year, recovering slightly in 2021 and experiencing a surge in 2022.

How much will my home be worth after coronavirus?

“Every deal has got a buyer on one side and a seller on the other. We’ve been measuring the number of sales falling through during lockdown and the vast majority are still in place.

“So far, there seems to be a lot of goodwill to keep the momentum of sales going through. But, particularly if you’re a stretched first-time buyer, you’ll be wondering if your money will go further if you hold back and wait. And that’s difficult to predict,” said Shipside.

In the absence of house price indices to measure your purchase against, Shipside advises buyers to keep an eye on four factors to determine whether house prices are likely to rise or fall.

Mortgages

Are there plenty of mortgages with good, long, fixed-term rates available? At the moment the Bank of England base rate is the lowest it’s ever been at 0.1 per cent. As long as lenders continue lending with low deposits at the current low rates, then homeowners are more likely to be able to afford their housing costs and buyers can access money to buy.

Employment

Put simply, “people need employment to buy houses”. The Government is currently injecting huge amounts of money to protect people’s jobs and income.

Economists’ forecasts

There are several scenarios for the economy after this lockdown ends: a V-shaped sharp downturn and swift recovery; a U-shaped long downturn followed by a slower recovery, or a dreaded W-shaped downturn where the first dip and recovery is followed by a second wave of recession.

“The vast majority of economists say this looks like a V-shaped downturn,” said Shipside, meaning a return to gentle annual house price inflation of around three per cent is the most plausible option.

Consumer sentiment

Property is the biggest purchase most people make. If buyers believe house prices might drop, most will hold back for fear of falling into negative equity, or even of having their home repossessed.

This in turn forces those who need to sell to drop their asking price, pushing house prices down. “There will, sadly, be some people who find their circumstances have changed during this period,” and they will be more keen to sell than a speculative seller.

Blog Post from Evening Standard Homes & Property

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