The housing market has been severely affected by the coronavirus lockdown, as viewings were halted and sales that were in progress faced delays. Now there are fears that the economy will dip as a result and house prices will fall. For those hoping to sell in the coming months, it can be a concern.
According to Zoopla’s UK Cities House Price Index, the lockdown led to 373,000 property transactions being delayed, with an estimated value of £82 billion. Demand for homes fell by 70% in March and even levels of browsing property online fell.
The good news though is that many potential buyers are still keen to press ahead with plans. Some 60% of would-be home movers said they intend to still purchase a property, compared to the 40% who are putting plans on hold due to the uncertain outlook. As restrictions are being lifted, activity in the market is increasing but, unsurprisingly remains subdued.
What does Covid-19 mean for property prices?
As the property market starts to open back up, homeowners and prospective buyers are wondering what it means for property prices in the coming months. Whilst there are lots of forecasts and predictions out there, it’s impossible to say with certainty what will happen.
What we do know is that the economy has been affected by the lockdown, as has consumer confidence. It could mean in the short term, demand for property decreases as potential buyers take a ‘wait and see’ approach and hold off making major decisions. If a recession is on the cards, as some forecasts suggest, this too could lead to house prices falling.
According to Nationwide, house prices fell 1.7% in May when compared to the previous month. It’s the largest monthly fall for 11 years, which would have occurred during the financial crisis.
Robert Gardner, Nationwide’s Chief Economist, said: “We have already seen a sharp economic contraction as a result of the necessary measures adopted to suppress the spread of the virus.”
However, he added that the measures implemented to support businesses and individuals should help create an economic rebound. This, in turn, may limit the impact on the housing market.
What does a fall in property prices mean for you?
If you plan to stay in your home
No one wants to see the value of an asset fall. For many of us, our homes are the largest asset owned so when property prices fall it can be a worry. However, just like when investing, it’s important to look at the long term.
If you don’t plan to sell, the fall in value is a paper loss only. Until you sell your home at a lower price, you’ve not lost anything in real terms. Property prices have increased significantly in recent years, more than making up the fall they suffered following the 2008 financial crisis. Over the long term, house prices have recovered from short-term dips. If you’ve owned your home for a while, it’s likely the value is higher than when you bought it, even accounting for a potential fall in the coming months.
So, if you’re not planning to sell your home, you shouldn’t be worried about property prices.
If you’re hoping to sell
If you’re hoping to sell in the coming months, the fall in property prices can be frustrating. However, whilst some predictions suggest a fall in prices, others indicate there will be strong demand from buyers that were forced to put plans on hold.
Ultimately, you need to decide what you’d be willing to sell your home for and be prepared to negotiate with potential buyers. Getting your home valued and speaking to real estate agencies, as well as keeping an eye on sales in your area, can help give you an idea of whether your goal is realistic.
If your property value does fall in the coming months, and you’re not happy to sell at a lower price, delaying the sale may be an option. Historically, property prices have recovered and when you look at the long term, have risen considerably.
If you’ll be buying another property, it’s worth noting that you’d also benefit from a fall in price during the purchase, helping to balance out a potential fall in value for your current home.
If you’re a first-time buyer
A fall in property prices does ultimately benefit first-time buyers. You may be able to get more for your money and stretch that deposit further. If you already had plans to buy, now could be a great time to look at what’s available.
As always though, the value of a property is linked to what you’re willing to pay for it; do you think the asking price is worth it?
Whilst lower property prices as a whole can make stepping on to the property ladder seem attractive, it doesn’t always mean you’re getting a bargain and you need to consider if the property is right for you and whether mortgage repayments would be affordable. During times of recession, it’s normal for banks to stress-test mortgage applicants more carefully. As a result, a mortgage offer may be lower than expected.
If you’re worried about the property market and would like some advice, please contact us.