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UK property market 2020: the impact of COVID-19

UK property market 2020 – what happened?

Although the government never officially banned property sales, it did advise both property professionals and buyers to postpone property transactions, and lockdown guidelines created a very challenging environment for the property market (and many other industries) to operate within.

Official government advice was that people should only leave their homes for very specific and limited purposes, that included:

  • Shopping for necessities, eg. food and medicine, but trips were to be as infrequent as possible
  • One form of daily exercise, outside, alone or with members of your household
  • Travelling for work purposes where it was not possible to work from home eg. key workers

A small number of property transactions took place towards the end of June and into July, as lockdown measures began to ease. On 8th July, the Chancellor, Rishi Sunak, announced that there would be no stamp duty payable on property purchases of up to £500,000 until 31st March 2021. This move gave the property market a much-needed kick-start, and demand has been strong in many areas in recent months.

How has the pandemic affected house prices?

Keen to avert mass unemployment and an economic crash, the government introduced two major measures to protect the British economy.

The first, a job retention scheme known as furlough, was financially supporting 30% of UK jobs at the height of its adoption.

The other, a cut to stamp duty rates, increased demand in an otherwise cautious property market.

The measures seem to have had the desired impact on the property market. According to property portal Right Move, asking prices are currently at a record high.

When does the stamp duty cut end and how will this affect house prices?

The current stamp duty changes will come to an end on 31st March 2021.

A rush to beat the end of stamp duty has driven strong demand, which has had an impact on property prices. Buyers are competing to buy desirable properties and, in some areas, are offering above asking price in a bid to secure the property.

Once the stamp duty cut ends, many believe that the price correction the measures aimed to avert will catch up with the UK property market. The Centre for Economics and Business Research predicts that property prices will fall by almost 14 percent in 2021, after the end of the emergency economic measures. While it acknowledges that the stamp duty cut has offered a positive boost to the property market, they suggest that it has merely postponed the inevitable.

Can you still view and buy houses during the 2nd lockdown?

Although in-person property viewings are not advised, they have not explicitly been banned.

Following what was effectively a three-month property market ‘freeze’ between April and June of 2020, the property industry is determined to do everything it can to minimise the impact of the 2nd lockdown on sales. Pent-up and new demand is driving the market, and it is important that the property industry can meet that demand. New ways of working are being developed to ensure the industry can withstand current limitations.

Guidelines for pandemic property viewings:

  • Avoid in-person viewings where possible
  • Use online viewings and video tours as an alternative to in-person viewings
  • When in-person viewings are necessary, as few people as possible should attend and social distancing should be observed
  • Masks and sanitiser should be used, and ‘touch areas’ such as door handles should be adequately cleaned before and after each viewing
  • Estate agents should remain outside the property while the viewing takes place
  • Physical interaction should be minimised, so no passing of physical documents

Guidelines for pandemic property purchases:

  • Property transactions are still taking place, but lockdown conditions and remote working are having an impact on speed – property transactions are currently estimated to take 4-5 months to complete
  • All contracts and official document (where possible) will be emailed and signed electronically

Has the pandemic affected mortgages?

The pandemic has undoubtedly impacted mortgages.

For those who are looking to re-mortgage, interest rates are at a historic low. This means there are some amazing deals to be had if you are considered a desirable, high-value customer.

However, the downside of the current economic climate is that lenders are feeling cautious. Would-be home buyers are reporting difficulty in securing mortgage finance without hefty 20 percent-plus deposits, and there appear to be increasing incidents of mortgage lenders down-valuing properties.

The government has announced the backing of new 95% mortgages to help first-time buyers onto the market, but at the moment many are finding it difficult to secure the lending they need.

It’s difficult for anyone to be sure what the property market will look like next year, and until mortgage lenders feel confident about the long term effect of COVID-19 on property prices, they are going to continue to be very cautious with their property valuations.

Expert predictions for the UK property market

What happens to the UK property market in the next 12 months will depend largely on what happens after the government’s job support and stamp duty measures end. Buyers are currently rushing to complete their property purchases before the 31st March 2021 stamp duty deadline, which is creating heightened demand and bolstering prices. However, once that measure ends, demand is likely to dip. This means we could see a significant ‘cooling’ of the property market.

It is also unclear what will happen in the jobs market. If predictions of mass unemployment prove to be accurate, it would be likely to have a crippling impact.

Danny Luke, managing director at Quick Move Now, says: “Everything feels quite unpredictable right now. Government measures have been very effective in ensuring the UK property market is surviving, and even thriving in many areas, in the wake of COVID-19, but it’s very difficult to know what will happen when those measures come to an end.

“How you feel about the prospect of the price correction predicted by many industry commentators will depend on your personal circumstances. If you are currently struggling to get onto the property ladder, a price correction would be likely to make owning your own home more accessible. If you have considerable equity in your property and are considering moving, you may achieve less from the sale of your existing property, but are also likely to be able to buy your next property at a cheaper price, so you may not be too worried. Those it would have the biggest negative impact on are those who bought property as an investment, those who have little equity in their property or want to access any equity they do have in their property, and those who need to sell their property for financial reasons.

“If you fall into the latter category and know you are likely to want to sell in the next 12 months, it may be wise to consider selling while demand is strong. Of course, there are circumstances that we cannot necessarily plan for, eg. unexpected unemployment. Unfortunately, it seems the next year or two are likely to be very unpredictable for the UK property industry and homeowners alike.”

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