Is UK property sold on misplaced optimism?
The bounceback is in full swing. The UK property market has roared back to life following the partial easing of lockdown restrictions. But is the exuberance of buyers entirely rational?
The latest evidence from property website Zoopla shows the number of sales agreed is running 4 per cent higher than before the Covid crisis — in spite of curbs remaining in place for longer in Scotland, Wales and Northern Ireland than in England. Sellers show little sign of pessimism, with asking prices 7 per cent higher than a year ago.
Most strikingly, Zoopla’s measure of “demand”, which includes would-be buyers contacting agents about specific homes, is 46 per cent higher than its pre-lockdown level of early March, in spite of softening since mid-May. And remember: that level was set at a time when agents were hailing the “Boris bounce”, as a firm election victory soothed buyers’ nerves over the impact of Brexit. The effect of all this is that house prices will not only be sustained at current levels, but will rise by 2 per cent over the next three months, the company predicts. Given the pandemic backdrop, this is a bullish outlook — but it comes with a sting in the tale. Prices will fall as the economic impact of the crisis bites: not as soon as originally expected, but with declines arriving in late 2020 and into 2021, Zoopla says.
A reawakening of activity was always to be expected after three months of enforced closure, which left most buyers and sellers stuck in limbo. But now that the much-heralded release of “pent-up demand” has arrived, its intensity is still remarkable. Buyers are clearly willing to make a far-reaching decision that could affect their finances for years to come, even as the economy enters a period of deep uncertainty. The risk has not been avoided, but postponed. By the end of the year, chancellor Rishi Sunak will be looking to end the support schemes that have sustained many businesses through the crisis and underpinned the jobs and earnings which fuel activity in the property market. Recommended Mortgages Mortgage curbs expected to last until autumn Bad news is already starting to materialise. Figures last week from the Office for National Statistics suggested 600,000 people had vanished from payrolls between March and May, with 100,000 more disappearing from self-employment. Just under 3m people are now claiming unemployment benefit — a leap of 1.5m since the pre-Covid period. If buyers appear sanguine about the economic shock reverberating through UK businesses, mortgage lenders do not. Banks and building societies have almost entirely departed from the segment of the market that lends out 95 per cent of a property’s value, and many are turning away those with a 10 per cent deposit. Most lenders blamed their problems with servicing the high demand for these low-deposit loans in the current crisis, but Nationwide, which stepped back last week, pointed the finger at the prospect of house prices falling. The logic is clear — a lender does not want to hold 95 per cent of an asset if it looks likely to be worth less than 95 per cent of its current value by the end of the year. This exodus will hit first-time buyers, a group which has driven recent growth, who rely heavily on high loan-to-value mortgages. read more