What COVID-19 might mean for the housing market and first-time buyers

Across the globe, economic activity has entered a semi-frozen state, and the UK property market is no exception. Since the UK’s COVID-19 lockdown measures were introduced, the volume of property transactions has dropped significantly and is, effectively, frozen. This situation is, however, not permanent. The question remains, therefore, about what happens to the market when conditions start to ease. What kind of recovery will we see, how long will it take, and what does this mean for first time buyer affordability?

The housing market in challenging times

The near-term market conditions are unquestionably challenging, as all economic and social activity is put on hold. The Centre for Economics and Business Research (CEBR) has predicted a 13% drop in house prices by the end of 2020, lessening the average value of UK houses by £30,000. This picture is of course highly variable by region, and some areas will be affected much more strongly than others. In particular, those regions where economic activity is particularly restricted by lockdown measures are likely to take a greater economic hit.

The 13% figure is not the only forecast though. Property consultancy Knight Frank has predicted drops of only 3% over the same period. It seems that some drop in prices is inevitable, given the situation, but, for many experts, this is not expected to be a total collapse and may well only be quite modest.

This current situation for the housing market follows a somewhat flat 2019, where uncertainties over Brexit particularly affected market confidence. Disparities in buyer and seller expectations led to a slow turnover and reduced transaction volumes. That said, the early period of the new year had shown an encouraging increase in market optimism, with house prices indicating something of a revival in the first two months. There is, therefore, some hope that conditions outside of coronavirus may yet be more promising.

The more immediate, and obvious consequence, however, is simply the major drop in property market activity. The government’s social distancing and lockdown measures mean that viewings are effectively prohibited in all but the most essential cases. There has been some move to online viewings, but clearly, buyers are likely to be more cautious without a full physical assessment. Furthermore, the lockdown measures mean that house moves are similarly out-of-bounds, and many prospective relocations will have been put on hold. Given this situation, the Royal Institution of Chartered Surveyors (RICS) has predicted a fall in the number of property transactions to their lowest ever recorded level over the next few months.

Buyer confidence is also affected. The lockdown measures mean reduced incomes for many and the prospect of some job losses. This will affect buyers’ willingness to commit to property purchases as well as mortgage approval rates. Unfortunately, this will likely have some consequences even after lockdown measures are lifted, as the economic knock-on effects continue. The hope is, however, that these are relatively short-lived.

The more general effect of this crisis situation is on market sentiment. Because of the direct physical and financial consequences of the crisis, both buyers and sellers face restricted capacity to act in the property market. In a more general sense also, a feeling of caution is possible due to the economic uncertainty of the current situation.

Cause for optimism?

Despite these undoubtedly difficult circumstances, estate agents and those looking to buy and sell property need not despair. The brief surge in market optimism of the early months of 2020 indicates that underlying factors are still quite strong and many are hopeful that the crisis will effectively be a short-term freeze rather than the beginning of something much worse.

Clearly, the government does not want to see a significant collapse, not least as the housing market has been one of the solid resources of the British economy in recent decades. The three-month mortgage holiday announced in April shows that the government are keen to avoid repossessions. Combined with the base rate cut and other fiscal stimulus measures, this means that homeowners may be better placed to wait out the crisis.

For first-time buyers however, the situation is a little more complex. Although it seems likely that 2020 will see a decline in house prices, this doesn’t necessarily that affordability will be become any better. In fact, it may end up being quite the opposite as some mortgage lenders have already temporarily stopped higher loan-to-value mortgages (e.g. those needing only 10% or less deposits).

Much remains to be seen about the economic conditions that develop as the crisis begins to ease. Some difficulties will likely remain, and sellers may need to adjust their expectations in the short term, certainly over the remainder of 2020. However, many experts in the field are optimistic that, for the UK property market, the coronavirus crisis represents a hiatus rather than anything more terminal.

What should first-time buyers do?

Although some mortgage lenders are already decreasing the LTV amounts on their offerings, at the time of writing there are still 90% options out there… for the moment, at least.

In terms of property viewings, it’s important to remember that all would-be buyers are in the same position at the moment; namely being stuck at home, frantically browsing Rightmove and being unable to view properties in person. As an alternative solution, some estate agents are now offering ‘virtual viewings’, but it’s likely that most will hold off on progressing their purchase until they can see the properties in person. If anything, this provides a unique opportunity for first-time buyers as there’s currently a glut of properties on the market, but very few which are progressing through to exchange and completion. Use this time wisely to get your finances in order and – if you haven’t already – a mortgage in principle agreed.

For those looking towards new-build properties, many homebuilders are now introducing fully refundable deposits for properties which can’t be viewed in person. This is a good option if you have your finances in order and are ready to move once the lockdown is over.