Although estate agency offices are currently unable to open, there are anecdotal accounts from those working remotely that buyers remain committed to purchasing, with many agents confirming that they are still managing to get deals to exchange, albeit with long-stop completion dates. Many new build developers are also reporting that they are taking sales reservations based on ‘virtual viewings’ where the buyers haven’t even physically visited the property.
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Another positive signal this week came from two of the largest UK home builders, Taylor Wimpey and Vistry, who announced that they will reopen building sites in May and by the end of April respectively.
In a statement, Taylor Wimpey confirmed that in the 16 weeks from the beginning of the year to 19th April, their sales figures had only decreased by 14 percent when compared with the same period last year.
So far then, it would appear that the UK property market is on hold rather than falling off a cliff as many had feared. But what will happen in the coming months when the current lockdown measures are eased is far harder to predict.
This is a very different type of economic contraction to Credit Crunch of 2008. As a consequence of the previous recession, banks and financial institutions are now better placed to deal with the current storm due to the lending legislation that was introduced in 2014 as a result of the Mortgage Market Review.
Simply put, there are more safeguards in place than there were previously, which should help more borrowers at the time they need it most.
In terms of what the housing market may look like for the rest of this year, again it’s exceptionally difficult to forecast with a high degree of accuracy at this stage, although we can look to historical data for a few clues.
Reviewing the number of UK homes sold prior to the last recession, according to HMRC figures the average number of completed residential property transactions in 2006, 2007 and 2008 was just over 1.4 million annually.
In the worst year of the last recession for the housing market, which was 2009, the total number of sales dropped to 847,540. In comparison, by the end of 2019 the total number of sales annually had risen back up to 1.18 million.
This clearly tells us that, despite the higher levels of unemployment in the last recession, falling house prices and reduced access to mortgage borrowing, a significant number of people still decided to purchase a property.
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Although this would possibly have been seen as a risky move at the time, buyers who took the gamble in 2009 would probably have seen their fortitude pay off in the long-term. Based on figures from HM Land Registry, the average UK property sold price was £155,417 in February 2009, increasing by 48.2 per cent over the next 11 years to an average sold price of £230,332 in February 2020.
While it would have taken over a decade to see returns of this magnitude, these numbers tend to underpin the view that the capital appreciation available on residential property if a purchase is made during a downturn can be significant. It’s one of the main reasons why bricks and mortar remains such a highly sought-after asset class.
But what of the impact on the numbers of properties that will be sold this year? The latest data from HMRC this week indicates that the number of completed residential property transactions in the first three months of 2020 was 297,920 on an unadjusted basis.
Some sources around the property industry suggest that there are perhaps as many as another 200,000 current sales in progress or exchanged but yet to complete – which then leaves us to wonder what the final total could be for this year, once as a country we start to take tentative steps back to a ‘new normal’ status quo.
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Reviewing the number of homes sold in the first quarter of 2020 Jeremy Leaf, former RICS residential chairman commented: “On the one hand, these figures are fairly meaningless in view of the impact of COVID-19.
“But on the other, they are quite interesting as they confirm what we saw before lockdown and what has been happening since. In other words, release of significant post-Brexit pent-up demand in the early part of the quarter, then very little activity.
“They also show a wave of demand likely to be released soon as buyers and sellers are telling us they are putting their plans on hold, provided damage to their own prospects and the wider economy is relatively short-lived, and financial support from the government can be maintained.”
Tomer Aboody, director of property lender MT Finance also suggested: “These figures are tentative and likely to be revised but show that residential transactions fell slightly in March compared with February, perhaps suggesting that the possible impact of COVID-19 was starting to be felt, even before the full extent of the crisis had become apparent. That said, residential transactions were still higher compared with March 2019.”
Residential property analyst Matt Fleming of Aylesworth Fleming observed: “As we started 2020, the property market was in rude health. On the back of three years of steady but unspectacular growth, both prices and transactions were picking up pace.
“For those who were on the verge of buying or selling when the Coronavirus arrived, the question on everyone’s lips is ‘What will happen to the market when the crisis is over?’ I’ve been forecasting property markets for over 30 years, but I’ve never experienced anything like the conditions affecting us today.”
Matt added: “However, many experts believe that the dip in the economy will be ‘V-shaped’, showing a fast recovery once we’re all back at work. I tend to share that view and, although there will undoubtedly be financial stresses as a result of the lockdown, those still in a position to buy – and secure the necessary finance – will be keen to proceed.”
As any economist will tell you, it takes a minimum of three months’ worth of data to confirm a trend. This leaves us with a wait until at least July, when the total number of sales for the second quarter of 2020 will be available, taking into account a total lockdown in April and then any gradual easement of the current confinement measures in May and June. These figures will provide a valuable insight into just how well consumer confidence in property has fared.
Of course, there may be a few bargains available in the coming months, as there are always distressed sellers who need to offload property in any market. It’s also entirely possible that property prices will reduce for a period of time, in fact it would be a shock if they didn’t.
But whatever transpires as far as values in the near-term are concerned, if previous history is anything to go by, the evidence suggests that those who can ride out the storm in the coming months should fare well in years to come.
Follow Louisa on Twitter: @louisafletcher
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