Published 1st April 2020
As I myself emerge from under the duvet having had a week of strange flu like symptons – it seems that for all intents and purposes the UK housing market is shut. It is temporarily closed for business. Nothing more, nothing less. It has not crashed, slumped or even slowed down. It has just stopped.
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The Impacts of Coronavirus
Aside from physical viewings not being allowed to take place at the moment, the real crunch point is that surveys and bank valuations cannot take place. Which basically means you can’t raise a mortgage…or certainly not under even half sensible terms. It doesn’t matter what market you’re dealing in – whether its wellington boots or bags of popcorn, for a market place to function people have to be able to trade within it. There has to be liquidity. While the banks are unable to safely lend money, the housing market is unable to function. Its as simple as that.
Aside from this, even deals agreed over the last few months will presumably be falling through left right and centre as people reassess changing situations.
What does this mean for our property market?
The primary question in my mind is how long will this situation remain?
And the secondary question (which is obviously related to the first one!) is what damage will be done to the UK economy in the meantime?
There are some excellent economic measures in place to protect both people and businesses, but they are temporary. What happens in 12 months? It takes considerable time for even a good business to recover from a few months with zero cash flow. Some businesses will go bust. Its inevitable some people will lose jobs and there will be forced house sales.
Working on that assumption – it begs the question, how comfortable are the banks going to be lending money to individuals whose future income may be uncertain? And then added into that perfect little storm, will be the fact that even when things do get going again – how long will it be before either borrowers, valuers, or lenders will be able to trust any price or reliable market data? Its not pretty is it. So many variables. So many moving parts.
What will recovery look like?
I re-iterate, this does not necessarily mean a price crash or a fall in underlying property values. What it does mean is that transaction volumes will dry up for a period of time. To give this context, in China, property transactions were around zero for the 3 weeks following movement restrictions and have since (2 months later) recovered to 50% of their 4 year average.
So – my expectation is that while the actual pandemic and social lock-down, etc may even turn out to be shortlived – the property market itself is likely to take a fair while longer to return to full health. I’m absolutely sure it will get there, a combination of low interest rates and rising inflation will certainly help – but it might be a wee while yet. Hold on tight folks!