COVID-19 and the Property Market
The coinciding events of Brexit and the coronavirus pandemic have made for a uniquely uncertain climate in UK real estate.
The coronavirus pandemic is affecting every sector of the economy in a manner not witnessed since the 2008 financial crash. However, not every sector is equally vulnerable, and there are still plenty of reasons to be optimistic that UK property will remain a viable asset throughout this current global crisis. Despite the now-quashed hopes that a ‘housebuilding revolution’ would be well underway this year, the government is still showing that it understands the needs of property investors and that it will support them through these dire times.
Paresh Raja, CEO of Market Financial Solutions, outlines the implications for the UK property market.
The economic repercussions of COVID-19 have hit the UK at an interesting time for our sector. Although Brexit uncertainty led house prices to fluctuate throughout most of the last half-decade, the election of a majority government in December 2019 facilitated an impetus of new-found confidence in the market. This was reflected by the increase in UK property prices in January 2020 of 1.9%, which was seen as part of the ‘Boris Bounce’.
Alongside this, the shifting value of the pound also resulted in international investors capitalising on UK property as a result of their increased purchasing power. Mention of a future stamp duty surcharge for such buyers in the 2019 Conservative party manifesto led to further activity as individuals rushed to complete deals to avoid this potential added cost.
All of these factors contributed to market which was showing good signs of recovery – but has this growth been entirely stilted by COVID-19?
Understanding the Resilient Nature of the Property Market
As it stands, not yet. Property deals that were scheduled to close in the last week have, for the most part, still gone through according to reports. From this, we can assume that we will not be witnessing a massive knee-jerk backing out of such purchases as a result of pandemic scare.
The question, then, becomes to want extent the industry will suffer due to the ‘social distancing’ measures installed by the government. House viewings, agent meetings, and contact signing all require a level of physical presence – so some fear a lack of ability to accomplish such face-to-face meetings will lessen sales completed, and therefore dampen the market resurgence many had hoped for.
In reality, property has shown remarkable resilience in the face of economic uncertainty before, and I am confident that it will continue to do so. During the global financial crisis, market activity did decrease but there were still over 898,000 UK property transactions in 2009, and 876,000 in 2010. Even when banks were adopting stringent lending practices, people still endeavoured to buy and sell property. This is also when demand for specialist finance providers began to rise significantly, with investors looking to take advantage of fast finance solutions.
In reality, property has shown remarkable resilience in the face of economic uncertainty before, and I am confident that it will continue to do so.
Putting COVID-19 in Context
The last two UK property corrections, namely the 2008 financial crisis and the early 90s recession, were both the result of purely financial pressures. One could argue a pandemic-related issue may not hit the markets as hard. This is of course a speculation and should not downplay the seriousness of the issue at hand.
Importantly, we are also seeing the industry adapt to these challenging conditions. The Financial Times reports that estate agents are already beginning to offer remote, online-only house viewings to prospective buyers to ensure there’s no delay in matching customers with their ideal home.
The government has also announced a three-month mortgage ‘holiday’ for those whose income has been affected by COVID-19, and interest rates are now at a record low of 0.25%. It is positive to see lenders also addressing the needs of their clients by offering online meetings and consultations, particularly in the bridging sector. It is this type of creative thinking and resilience that makes me confident that the UK property sector will be able to overcome the initial challenges posed by COVID-19.