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The COVID-19 lockdown has put the UK’s housing market on hold.

Published: 08/04/2020 By Mark Nicholson

The UK government has defied the laws of physics and held back the UK’s most powerful force: the property market. Recognising that the coronavirus lockdown makes many aspects of buying and selling homes either impossible or extremely difficult, the government has effectively hit ‘Pause’ on the whole market to avert a house price crash.

Without specifically banning property transactions, the government has urged buyers and sellers to delay, while lenders have been asked to put mortgage offers on hold. Alok Sharma the Business Secretary said, ‘People will understand that at this time they should, where it’s at all possible, move their dates for completion but also their dates moving into new homes.’

Demand from buyers fell by 40 per cent in the week before 22 March, according to Zoopla, which also forecast an overall drop of 60 per cent in the coming quarter. However, the official pausing of the property market should help to minimise the impact on house prices.  

I’m in the middle of buying a home – what will happen to me?
The latest guidance from the Ministry of Housing states that ‘there is no need to pull out of transactions’, but also stresses that the lockdown rules must be followed. The practical implication is that, in the vast majority of cases, the advice is simply to wait until the lockdown is over before proceeding any further.

Buyers who are concerned that their current mortgage offer may expire in the meantime can take some assurance from Sharma. The Business Secretary said that the government was encouraging mortgage lenders to extend existing mortgage offers to take account of the delay. This should mean that anyone with a valid mortgage offer will not need to renew it within the usual timeframe, provided that their material circumstances remain the same. A mortgage broker should be able to tell you more about this.

What if we’ve already exchanged contracts?
For buyers and sellers who have exchanged contracts and set a completion date, the advice is the same: to delay if possible until the lockdown is lifted. The trade body for mortgage lenders, UK Finance, has likewise stated that providers will help customers who have already exchanged contracts to extend their mortgage offers by up to three months. At present, it is not known whether the lockdown will last longer than this, but if it does, then it is likely that further allowances will be made to prevent the housing market from seizing up.

What if my chain has broken?
One of the unavoidable side effects of pausing the entire property market will be the breaking of many housing chains. Some homeowners are deciding they no longer want to sell in the current circumstances, causing headaches for others in their chain. In many cases, chains may break from the bottom as first-time buyers are spooked by uncertainty and pull out. Against that, interest rates are at an all-time low, so once the lockdown is over it can be hoped that other first-time buyers will be there waiting to fill the gaps and repair some broken housing chains.

How has the lockdown affected mortgage lending?
For most mortgage lenders including HSBC its business as usual and the main issue facing the mortgage market is how to perform mortgage valuations so that the offers can be issued. With surveyors being unable to enter occupied properties due to the lockdown there is now a backlog of mortgage applications. For this reason, Barclays has stopped accepting applications with a loan-to-value (LTV) above 60 per cent, and the largest lender Lloyds (which includes Halifax and Bank of Scotland) has cut back to a similar degree. With lower loan-to-value applications, desktop valuations can be performed and mortgage offers can be issued with lower risk.  

What effect will the pause have on house prices?
Prices will fall by only 3% , according to global consultancy Knight Frank. They forecast a bounce back by 5% in 2021. Behind the Knight Frank forecast is an assumption that the British economy will shrink by 4% in 2020 before growing by 4.5% next year as the pandemic recedes.
Liam Bailey, the global head of research at Knight Frank, said: “The housing market was in a strong position in January and February. A sharp uptick in sales and price growth was seen across the UK, with even the prime central London market seeing a reversal of a five-year-long price decline.
“We now have to expect weaker economic activity in the first half of 2020, the dislocation in the jobs market and weakened consumer sentiment will impact on prices – however, the relatively finite timespan of the crisis means declines will be limited.”

The outlook for home buyers and sellers
The current pausing of the market is certainly a big upset for anyone hoping to buy or sell a home, but it should not in itself be a cause for alarm. Depending on how well the UK economy weathers the coronavirus, there is every reason to suppose the housing market will pick up more or less from where it left off. 

If you need advice on any property related matter please get in touch.