Gloom goes out the win­dow as house prices lift

De­spite pes­simistic fore­casts, ask­ing fig­ures last month hit a record, but is the property mini­boom built on straw?

The Daily Telegraph - Business - - Business - MELISSA LAWFORD

On the sur­face, it looks like Bri­tain’s post­coro­n­avirus house price crash has been can­celled. The state of the hous­ing mar­ket is sur­real. Un­em­ploy­ment is spik­ing and the na­tion is head­ing into what the Bank of Eng­land ex­pects to be the worst eco­nomic slump in 300 years.

Yet ask­ing prices in July hit a new record high ac­cord­ing to property web­site Right­move, agents are re­port­ing an un­prece­dented surge of buy­ers post-lock­down and sev­eral an­a­lysts have up­graded their price fore­casts in the wake of Chan­cel­lor Rishi Su­nak’s stamp duty hol­i­day.

Deutsche Bank’s fore­cast in April of a house price drop of 20pc does not marry up with what is hap­pen­ing on the ground right now. But the same prob­lems are still on the hori­zon – mort­gage hol­i­days and the fur­lough scheme will end in Oc­to­ber and the boost from the stamp duty hol­i­day will not last.

So are we just post­pon­ing the in­evitable?

A sum­mer boom is ahead

The Bri­tish property mar­ket is in a buy­ing frenzy. Richard Don­nell, of property web­site Zoopla, said the num­ber of newly agreed sales in Bri­tain was 20pc higher than the pre-Covid level, which in turn was al­ready up sig­nif­i­cantly on 2019 ac­tiv­ity lev­els.

Last week, buyer de­mand (mea­sured by in­quiries on spe­cific prop­er­ties) in Scot­land and Wales was al­most double the March bench­mark. De­mand in Lon­don and the rest of Eng­land was up 40pc and 52pc re­spec­tively.

As the sales agreed to­day con­vert into com­pleted trans­ac­tions be­tween Septem­ber and Novem­ber, recorded prices will likely rise, said Mr Don­nell. Anal­y­sis of con­veyanc­ing forms com­pleted in June pro­jected that house sale prices in Septem­ber would rise by 1.9pc, ac­cord­ing to Real­ly­mov­ing, a home mov­ing ser­vices web­site.

The short-term growth will some­what coun­ter­act the falls recorded dur­ing lock­down and those an­tic­i­pated at the end of the year.

Re­search firm Cap­i­tal Eco­nomics has changed its price fore­cast from a 4pc fall to a 3.5pc fall in 2020.

The ac­tiv­ity will con­tinue. The Cen­tre for Eco­nomics and Busi­ness Re­search, a con­sul­tancy, has fore­cast that the stamp duty hol­i­day sav­ings will trig­ger a 6pc rise in trans­ac­tions, equiv­a­lent to 41,000 ex­tra pur­chases.

An ad­di­tional 60,000 sales will be brought for­ward from later in the year – mean­ing there will be more than 100,000 ex­tra trans­ac­tions be­fore

March 31.

The surge can’t last

There could be a nasty twist. Like Cap­i­tal Eco­nomics, CEBR up­graded its 2020 price fore­cast from -8.7pc to -5pc af­ter the stamp duty an­nounce­ment. But it has down­graded its out­look for 2021: from price growth of 1.4pc to a drop of 10.6pc.

Kay Neufeld, of CEBR, said: “There is a big cliff edge wait­ing in the au­tumn.

“When coro­n­avirus hit, it was clear that there would be a mas­sive hit to con­sumer confidence and spend­ing.

“We know that it is go­ing to come, but due to the Govern­ment mea­sures we are wit­ness­ing a de­lay.”

Mr Don­nell said: “Our ex­pec­ta­tion is that de­mand will weaken later in the year, which will im­pact sales vol­umes and re­duce the up­ward pres­sure on prices.

“Any price falls will ma­te­ri­alise in 2021 rather than 2020.”

Val­ues will start to rise at the end of 2021, CEBR pre­dicted. But the “V-shape” re­cov­ery model is out of the win­dow. It ex­pects house prices to stay be­low their pre-coro­n­avirus level un­til 2023. mort­gaged home­own­ers. Now, lenders have re­ported that only a rel­a­tively small share of home­own­ers have re­quested ex­ten­sions: 16pc of those at NatWest and the Royal Bank of Scot­land, and 20pc at Na­tion­wide.

But even if only a fifth of 1.9m home­own­ers were to be­come forced sell­ers as soon as the scheme ended, that would mean a wave of 380,000 homes com­ing to mar­ket at once. That is the equiv­a­lent of a third of the to­tal num­ber of property trans­ac­tions in the last tax year and half the num­ber in the year following the fi­nan­cial cri­sis. “It would have a very quick ef­fect once these homes come onto the mar­ket,” said Mr Neufeld. “In a cou­ple of months af­ter people start to de­fault on their mort­gages, we will see an ef­fect on prices.”

Some prospects look better than be­fore

How­ever Hansen Lu, of Cap­i­tal Eco­nomics, said that even when the in­dus­try-wide mort­gage scheme ends, reg­u­la­tory changes mean that lenders’ own in­ter­nal for­bear­ance pro­ce­dures will be more gen­er­ous than a decade ago.

Credit avail­abil­ity is also im­prov­ing. When lenders with­drew low de­posit mort­gages en masse, they sparked fears of fur­ther price drops. En­try-level buy­ers are es­sen­tial for main­tain­ing house prices.

If no­body can buy at the bot­tom of the chain, there is no cush­ion for house price falls. But now, in the wake of the stamp duty hol­i­day an­nounce­ment sev­eral lenders in­clud­ing Na­tion­wide, Plat­form (part of The Co-op), Coven­try Build­ing So­ci­ety and Metrobank are of­fer­ing 10pc de­posit mort­gages again – though 5pc de­posit mort­gages are still nowhere to be seen.

“The prob­a­bil­ity of a crash has fallen sig­nif­i­cantly,” said Mr Lu.

‘In a cou­ple of months af­ter people start to de­fault on their mort­gages, we will see an ef­fect on prices’

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.