What a second lockdown could mean for house prices

The Prime Minister’s speech on September 22 saw the introduction of new restrictions in England, including implementing a curfew on pubs and restaurants as well as encouraging working from home wherever possible.

The housing market stagnated as a result of the first lockdown in March, and many people fear that a second lockdown could have a similar effect.

If you’re concerned about the effect that another lockdown could have on the value of your home, read on to find out more.

The first lockdown saw a freeze of the housing market and a stagnation in house prices

During the first lockdown, the government’s restrictions on the housing sector meant many sellers suspended house viewings. Due to this lack of activity, house prices suffered, with the Independent reporting that the average price of sold properties fell by 1.4% between May and June.

The lockdown made it impossible for buyers to view houses and, while virtual viewings were still available, these did not satisfy many prospective buyers. Being unable to view properties in person also caused trouble for surveyors, who couldn’t visit properties to carry out a valuation.

Many sellers chose instead to delay their purchase until after the government lifted the restrictions. A report in the Guardian estimates that the lockdown caused around 520,000 house sales to be halted.

When the government eased the lockdown in June, there was a surge in house selling across the country which caused a ‘mini-boom’ in prices. In some areas outside of London, the increase in house prices had not been seen since prior to the 2008 financial crisis.

According to a report by Halifax, published in the Telegraph, house prices saw a growth of 1.6% in August, with the average house price reaching a new high of £245,747. This is the first time that the average house price has risen above the £245,000 mark.

The mix of pent-up demand, a change in buyers’ expectations, and the potential tax savings from the Stamp Duty holiday have all fuelled a surge of demand which has driven up house prices, but many people fear that a second lockdown could bring an end to that.

If there is a second lockdown, experts hope the government will refrain from restricting the housing market

It is unclear whether a second lockdown will be necessary if the current restrictions that the government has announced are enough to combat the virus.

Many estate agents fear that a full, or even partial, lockdown could spur the government to implement restrictions on the house buying process. These restrictions might include reducing the number of people who can view a property at one time, or even halting house viewings altogether.

However, some experts believe that the government may refrain from restricting the housing market in the event of a second lockdown, as they have previously demonstrated that they consider the property market to be an important sector.

For example, the government reopened the property market on May 13, several weeks before the lockdown restrictions on other sectors were eased. Similarly, in areas which are facing local lockdowns, such as Birmingham and Leicester, there have not been any new restrictions for the property market, such as the banning of house viewings.

Experts hope that this show of support suggests that the government may impose fewer restrictions on the housing market in the event of a second lockdown than it did initially.

A second lockdown may cement market trends as buyers re-evaluate their needs and upsize

Some experts believe that the prospect of a second lockdown is one of the factors driving the current surge in house sales.

The initial lockdown caused many homeowners to reassess their housing needs. Many people sought a nicer ‘home office’ environment, as they were now able to work from home, while others desired more space inside and outside their home, including a larger garden.

The transition to working from home also changed many people’s commuting requirements, meaning that they could look for homes further from the city in more suburban and rural areas. Research shows that Brits are now willing to live an average of 56 miles away from their workplace, compared to just 23 miles pre-lockdown.

The announcement of the Stamp Duty holiday in the Chancellor’s Summer Statement, which could save buyers up to £15,000 in tax, was also an incentive for homeowners to move.

However, if the second lockdown lasts longer than the initial one, it may prove to be more of a risk to the housing market due to the economic instability it would cause.

If unemployment were to rise, there would likely be an increase in the number of houses being sold, either due to people downsizing to save money or from an increase in banks repossessing homes. This would create a buyers market and drive down prices.

Economic instability may also cause lenders to become more risk-averse, which would make it harder for prospective buyers to get a mortgage.

Furthermore, the Stamp Duty holiday is set to end in March, meaning that there will no longer be a tax incentive for people who want to move home. These two factors may decrease the number of buyers on the market, which may also drive down house prices.

While in the short-term the current trends may continue, as people who work from home reassess their housing needs, it cannot be guaranteed that it will be the case in the long term.

If the government implements another lockdown and its economic impact increases unemployment, it is likely that the combined effect of the decreased number of buyers and the increased number of houses on the market may drive down house prices.

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If you’re considering moving home, or if your mortgage deal is coming to an end, we can help. Email enquire@london-money.co.uk or call us at (0207) 808 4120 to find out more.