Will Covid-19 have an effect on house prices?

  • 16 June 2020
  • 10 mins
  • The lockdown during the coronavirus has frozen the UK’s housing market

  • Some are predicting steep falls in house prices over the coming months

  • This will be good news for buyers but bad news for those looking to sell

  • However, demand for good property in the UK remains high, so prices may hold up

Up until now, few investments have been as enduringly popular as bricks and mortar. But the corona crisis appears to be changing everything.

Firstly, with UK residents under strict lockdown for weeks on end, buyers and sellers can’t make their transactions. Viewers can’t go and see new properties, and the usually brisk Spring property market has completely stalled [1].

Adding to the concerns for the country’s housing market are the fears that the corona closedown will be highly detrimental for businesses and jobs and, as a result, people who had planned to buy a new or bigger home this year will instead have to wait until their circumstances improve. Not to mention those foreign property buyers, who might have wanted to buy in the UK but will now be waiting to make sure the virus situation improves.

For buy-to-let property owners, there are also difficulties ahead. Many tenants could face the loss of jobs and income during lockdown. Landlords must give tenants rent breaks, if needed, and they are not able to evict tenants unable to pay their rents [2]. However, landlords can ask for mortgage payment breaks if required [3].

With all this gloomy news, it’s no surprise that there are some very downbeat predictions for UK house prices over the coming months and even years. The Centre for Economics and Business Research (CEBR) [4] has predicted an overall fall of 13% in the year ahead for UK house prices. It suggests Yorkshire and the North-West will be among the worst affected regions, with average drops of 16%. In its estimation, the rental sector will lead the falls because tenants who’ve become unemployed will not be able to pay their rents and landlords will want to sell properties.

Another obstacle that the virus crisis is likely to raise is the need for homebuyers to come up with a bigger deposit [5]. The majority of mortgages require a loan-to-value deposit of 25% or more and many lenders have now withdrawn products with lower deposits. This will undoubtedly make it more difficult for some to get on to the housing ladder.

Those older homeowners who have taken out equity release loans on their properties may be concerned that house-price falls will affect their family’s ability to repay these loans when their home is sold. Most people will have release loans with a sensible safety margin built in, and new loans have “no negative equity” guarantees [6]. But if you have any concerns about this, it’s important to seek good advice now. You can speak to your lender, or contact a financial adviser, who will look into your circumstances and see what can be done to protect you and your relatives.

There have already been calls for the government to step in to help the housing market bounce back once the crisis has passed. The Royal Institute of Chartered Surveyors, for example, has called for a temporary stamp duty holiday for buyers [7].

If the worst has happened and a loved one has died prematurely of the virus, hopefully life protection was in place to ensure the mortgage and any other debts will be covered. It may not be the time to worry about falling house prices in the midst of such a terrible situation, but when you’re ready to think about the next steps to take financially, sound professional advice could help you to make good long-term decisions.

Is there a silver lining?

Wherever there’s a downside, there is usually an upside, if you look carefully. If you are a potential property buyer with a healthy deposit saved and a good credit score, then falling prices and lower interest rates should mean you’ll be able to get more for your money; but only if someone is keen to sell. If you’re a buy-to-let landlord, or planning to become one, there may well be bargains available in the months or even years ahead, as others try to come out of this market.

If you’re someone who is planning to gift a valuable property to a loved one, then a depression in house prices could be in your favour too. Making the gift when the value is lower on paper means there could be less inheritance tax to pay should you not outlive your gift by seven years.

Read more: Inheritance tax, a complex labyrinth

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Finally, there are many optimists who believe that even if UK residential property prices do take a knock as a result of these months of lockdown, the pent-up demand for housing will mean that, over the medium term, values should remain resilient [8]. Estate agents Knight Frank foresee a fall of only around 3% on the horizon for UK property [9]. And those who are trying to sell houses away from London could be in for good news. During lockdown, an analysis of web traffic suggests that people in all of the country’s major cities were looking at property in the countryside [10]. There continue to be more people looking for homes than selling them, and demand for desirable property in good areas usually remains solid [11].

Important information

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