The covid-19 pandemic has brought about truly unprecedented times for the UK property investment market. From the shutting down of schools and workplaces, to restrictions on movement and the introduction of social distancing, this is a situation like no other in living memory.
The effects of the coronavirus have been wide-reaching. Oil prices are at an all-time low and the economy is beginning to slow. It is unlikely that the UK property investment market will come away from this unscathed. But what exactly can we expect from the country’s housing market after this is over?
What the UK property investment market will look like in a post-coronavirus world is difficult to accurately forecast. This is mostly because we can’t create any meaningful understandings of what it looks like at the moment. Rightmove, who produce monthly statistics on the UK housing market, have said that the lockdown conditions have made it difficult to produce data on the subject.
With people in lockdown they’re not moving house. This has caused the rate of transactions to plummet, and any transactions that are happening will be atypical.
In a recent article for MoneyWeek, John Stepek has proposed a few different scenarios that could occur once this is all over.
Firstly, although house prices may be lower, he says a crash in the immediate aftermath of the pandemic is unlikely. “A crash really has to be driven by forced selling. Forced selling only happens when people are unable to pay their mortgages. That in turn only happens when mortgage costs spike, people lose their jobs, or both.”
Although some people are struggling financially and there is an increase in unemployment, the level of social security and other government assistance should alleviate any significant individual financial impacts.
Any rise in mortgage rates is also unlikely. A large proportion of homeowners are now on fixed-rate mortgages and central banks are bound to keep rates low for years to come.
According to Stepek, more of a risk is the market freezing over due to a lack of credit availability. This credit supply will be the key factor in whether house prices are stagnant or collapse.
Bad debts are likely to be the biggest factor in this. As Stepek explains, “Commercial property loans are going to become a problem, what with companies going bust and proving unable or unwilling to pay rents. Credit cards are likely to see default rates spike too.”
This in turn may stop banks lending mortgages as willingly as they have done previously. With buyers not being able to pay as much as they may have had to in the past, sellers will either stay put or have to accept a lower sales price.
A final scenario that Stepek proposes is a change to areas of population. An increased trend in working from home may make city-centre living less of a priority for people, leading to a growing number of people choosing to live in places with lower property prices and a slower pace of life. According to Stepek, coastal towns should see the biggest impacts of these population changes.