Property is one of the sectors that has been impacted by the coronavirus pandemic. With government guidance urging buyers and sellers to ‘adapt and be flexible’ by agreeing new moving dates, property consultancy Knight Frank estimates that more than 520,000 UK home sales will be abandoned this year.
With the number of house sales set to sharply reduce, what does that mean for house prices in 2020 and beyond?
Forecasts vary, but all expect house prices to fall in 2020
Property website Rightmove has already recorded a 40% fall in the number of homes listed for sale between 26 March and 20 April. This is after the government effectively froze the housing market by telling buyers and sellers to delay moving home if possible and halt viewings until restrictions were lifted.
With Knight Frank estimating that the number of house sales in the UK will plummet from 1,175,000 last year to just 734,000 this year, experts believe that property prices will fall in 2020.
However, forecasts vary between experts and are based on different assumptions about quite how much the British economy will contract this year.
- Knight Frank – UK house prices will fall 3% in 2020 but then bounce back by 5% in 2021
- Savills – UK house prices could fall between 5% and 10% this year, recovering slightly in 2021 and then experiencing a surge in 2022
- Centre for Economics and Business Research (CEBR) – UK house prices will fall by 13% by the end of 2020 thanks to a deep recession. However, there will be significant regional differences as far as unemployment is concerned, and this will hit prices in some parts of the UK more than others.
The predictions come after the Nationwide House Price Index showed that house prices increased by 3.7% annually to April, its strongest growth since February 2017.
Liam Bailey, the global head of research at Knight Frank, said: “The housing market was in a strong position in January and February. A sharp uptick in sales and price growth was seen across the UK, with even the prime central London market seeing a reversal of a five-year-long price decline.
“We [now] have to expect weaker economic activity in the first half of 2020, the dislocation in the jobs market and weakened consumer sentiment will impact on prices – however, the relatively finite timespan of the crisis means declines will be limited.”
Low interest rates could see a speedy return to ‘normal’
One of the reasons that many experts predict that the property market will bounce back quickly once the pandemic is over is that interest rates are low and there are plenty of lenders accepting new applications.
Back during the global financial crisis in 2008, house price drops were partly caused by the ‘credit crunch’ and the difficulty many people had in accessing mortgages.
Combined with higher interest rates, there was more negative equity and more repossessions which caused house prices to fall. Along with a steep rise in unemployment and wage stagnation, many prospective buyers were unable to capitalise on cheaper house prices.
However, in 2020 there is plenty of demand for homes and mortgages are freely available at very low interest rates.
Miles Shipside from Rightmove says that the fairly even balance between supply and demand are likely to see house price growth settle before potentially returning to the gentle increases seen after December’s resounding Conservative general election victory.
He said: “I think as we leave lockdown, we’ll see a relatively benign flat period. I can’t see the forces that would usually drive house prices down at work at the moment but I do think there’ll be a slow-motion period where people get used to the new social distancing rules, and where housing might not be at the top of everyone’s list.
“I think this might last for several months but my gut feeling is that, after that, we’ll see a continuation of upwards price pressure once people get used to social distancing.”
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