At the time of writing this post the whole of the UK was in lockdown and the property market was effectively closed. These are uncertain times so we wanted to provide you with our view on how the coronavirus will affect house prices, property investment and house building.
First off let’s we want all of you to stay safe. The lockdown is frustrating for everyone but we urge you to follow the rules. As a property investor you are used to getting out there and making things happen. But if Prince Charles and Boris Johnson can get the coronavirus so can you. Just wait it out.
You cannot Purchase a new Property
The housing market in the UK is closed for business because nobody can leave their home to make a transaction. You can only go out for essential reasons such as grocery shopping and buying a property is certainly not essential.
The exception to this is the people that have closed a deal and want to take possession of their new property. The advice from the UK government is that you should not pull out of such a transaction and proceed with it. Vacant possessions are fine.
It is a different story for people moving into properties currently occupied by others. The official advice here is to postpone moving and make arrangements for some time in the future. So if you have an HMO property for example you are not going to be able to find new tenants at the moment.
What about Property Sales?
Zoopla estimates that the UK will see a fall in property sales of around 60% in the coming 3 months. We are always positive here at CPG but honestly we think that this is pretty optimistic. Many deals are going to fall through. People are not going to take the chance moving home during the COVID-19 crisis.
The banks are taking steps as well and they are restricting mortgage availability for new property purchases. Some are requiring purchases to furnish a deposit of 40% during this time. Other financial institutions have just stopped offering mortgages altogether.
Financial institutions say that they are having staffing difficulties and they have had to close most of their call centres. There are also problems around the valuation of properties as there is nothing to compare to.
The financial institutions will not admit to this publically, but they are concerned about the employment situation and the ability of their customers to make mortgage repayments. Yes the government has put some measures in place to counteract this but how long will this go on for?
The effect on House Prices
At some point the country will slowly get back to normal and the property market will open again. What will be the effect on house prices when this happens? Well if the interest rates are still low (which they probably will be) then house prices should remain strong. The availability of mortgages will also be a major factor.
If the decision is made to increase the base rates then there will be a slump in house prices. The same can be said if the unemployment levels rise significantly. Some people will be forced to sell their homes for a lower price just to survive.
The bottom line is that there will need to be a strong bounce back in the economy for things to remain the same or for house prices to rise again. As property investors either scenario can be good. At some stage things will return to normal so if you can buy low then you will do well.