How will coronavirus affect house prices – and should I hold off buying a property?

The property market has been given the green light to reopen as the Government announced it was lifting the seven week freeze on property viewings and home moves today.

The entire sector was put on ice at the end of March after the country went into lockdown. A total of 373,000 sales have been suspended, according to property portal Zoopla.

Now, the new rules will allow people to conduct non-essential house moves, view properties to rent or buy, visit estate agent offices and progress with their sales and purchases. 

The Government has just issued detailed guidance for how house viewings and sales can be conducted in line with social distancing. These include a ban on open houses, restricting viewings to only members on one household, and asking sellers to vacate properties during viewings.

But things could change quickly again. The guidance notes it may become necessary to pause house moves again to halt the spread of the virus. The housing market will be dependent on how well-controlled the outbreak stays.

Property industry bodies will also be issuing more specific advice for their members shortly. These could include PPE requirements.

The property market freeze has brought a far more extreme plummet in sales than was seen after the financial crash. Since lockdown began, newly agreed transactions have dropped by 92pc, said Richard Donnell, director of research at Zoopla. Even as the restrictions lift, falls will be sustained in the coming months.

The Bank of England is anticipating Britain’s sharpest economic downturn since 1706. Its latest Financial Stability Report says this would be consistent with a 16pc drop in house prices.

Other forecasts vary wildly. Knight Frank has just downgraded its expectation of a 3pc fall over the remainder of 2020 to a 7pc drop. Savills has said there will be short-term falls of 5pc to 10pc, while the Centre for Economics and Business Research (CEBR) has calculated a 13pc fall

At the top end is Lloyds Banking Group’s worst case scenario forecast of 30.2pc falls over the next three years, while Deutsche Bank expects falls of as much as 23pc.

Estate agents are certainly gloomy: in the Rics’s first monthly survey of price expectations after lockdown started, it recorded its largest drop since 1998.

“We are particularly pessimistic,” said Alastair Neame, the economist who wrote the CEBR report. He argued that prices will fall steeply because disposable incomes are forecast to drop by 5pc. As people purchase homes with lending, this number gets multiplied up when it comes to its relation to house prices, said Mr Neame. This will be compounded by the fact that lenders are already becoming far more risk averse.

But other analysts are more sanguine. Donnell, of Zoopla, argued that prices should hold up as 75pc of those in the middle of a deal intend to continue with it.

“While the effect on sales volumes has been dramatic, there has so far been little evidence of a fall in house prices, largely due to a fundamental lack of activity,” Nick Whitten of JLL added. “Forced sellers would normally drive down prices in a crisis, but due to Government job protection schemes and the availability of mortgage holidays there are very few potential distressed vendors.”

So what should buyers and sellers do for now? 

Should I still look to buy a house after the lockdown?

Buying into a falling market brings risks of getting into negative equity. In short, owning a property that is worth than what you borrowed to pay for it. This is a particular problem for buyers with high loan-to-value mortgages.

However, if you are buying with a long-term view, it could be a good time to negotiate. “It’s a fantastic opportunity for a good deal,” said James Hyman of Cluttons. “Anyone with a property still on the market is going to be a motivated seller, and you’re going to have no immediate competition.”

Developers who are struggling to sell their properties might be open to discounts in particular, said Chris Sykes, of mortgage broker Private Finance. Record low interest rates of 0.1pc will help those getting on the ladder for the first time, he added.

But there will likely be limited stock after the lockdown. Many sellers will want to sit tight to wait out the market.

Should I still sell my house?

If your property is already on the market, it may be advisable wait until the Government or the property industry issues guidelines on  how to conduct socially distanced house viewings before inviting buyers into your property. 

The new guidance may include a requirement to sign a declaration that you do not have coronavirus symptoms. You will likely need to clean your home before and after each viewing and provide your own PPE.

Similarly, if you are preparing to bring your property to the market, there will be new guidance for inspections.

Though house viewings will be possible again, they will be complex. It is advisable to ask your agent to prepare virtual marketing material for your property, which will reduce the number of physical viewings necessary to secure a buyer. 

Be wary that analysts are expecting house prices to fall. However, stock levels will also be incredibly low. The number of new listings in the first three weeks of April was 90pc less than in the same period in 2019, according to The Guild of Property Professionals. Some agents are also anticipating a degree of pent-up demand. 

What is happening in the mortgage market? 

Interest rates are now at very low levels, meaning in theory that those on expensive deals could slash their bill by remortgaging.

Lenders have not lowered the interest rates on their fixed deals following the Bank Rate cut and some have even increased them for new customers. 

Some homeowners will prefer to opt for the more expensive fixed-rate option because of concerns that interest rates will bounce back quickly. 

There are now far fewer mortgages available. As lockdown was announced, banks withdrew more than 1,500 products from sale in two weeks – equivalent to 30pc of the total mortgage market, according to data company Moneyfacts.

The offering has started to increase again. The rise of virtual valuations has meant that Virgin Money and Clydesdale Bank will now lend up to 75pc of a property’s value and Nationwide will lend up to 85pc. Now that the market is reopening, physical valuations will no longer be a barrier to lending and mortgages for buyers with smaller deposits could become more available again.

However, as the recession looms, there are also signs that lenders could become more risk averse in the future and will further withdraw lending for buyers with small deposits.

I’m downsizing. Should I be concerned about having a lot of cash in my bank account?

With financial uncertainty in the air, some downsizers may feel nervous seeing a large lump of cash arrive in their bank account.

However these funds are protected, up to the value of £85,000 per person (or £170,000 for a joint account), thanks to the Financial Services Compensation Scheme, which refunds customers if their bank or building society goes bust. Those who have recently sold a home or received an inheritance have even more protection. They can be covered for up to £1m for six months. 

After this point, sellers should safeguard their cash by spreading it across multiple banks, as the £85,000 limit applies per institution.

Reader Service: Try our free equity release calculator and see how much tax-free cash you could release from your property 

Are you holding off buying a house because of coronavirus? Or is now a great time to buy? Tell us in the comments below.

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