Economic reality yet to hit booming property market
Confined at home but freed from the commute, lockdown had a huge impact on how millions of families lived. No longer tied to where they work, homeowners have realised it may be possible to have more space and a garden. Property websites Rightmove and Zoopla reported record traffic as wannabe buyers sought to make that a reality.
It remains to be seen if this represents a fundamental shift in behaviour, away from cities and towards a work-from-home culture.
But for the property market, at least in the short term, lockdown and its aftermath have had an instant effect. As soon as restrictions were loosened, estate agents reported a huge spike in demand for homes in the countryside and cities’ outer commuter belts.
This combined with a stamp duty holiday and pent-up demand left over from the “Boris bounce” after last year’s election to create a mini-boom.
Soaring against the odds
To begin with, anecdotal evidence suggested the surge was being driven by just a few wealthy buyers ready to pay far over the asking price for a place in the country. A few months have now passed since market restrictions were lifted, and it’s clear that changes are far more widespread.
Rightmove has recorded a 4.6pc surge in asking prices since last August as vendors seek to benefit from a jump in demand. Estate agents body NAEA Propertymark said that the number of properties sold per branch was at its highest level for 13 years. Zoopla has said that properties are selling 31pc faster than last year.
Part of the reason has been the stamp duty holiday, introduced by Rishi Sunak, the Chancellor, to stimulate activity. House prices are rising as a result – even though the country has been through one of the most brutal recessions in its history.
This can partly be explained by an imbalance in the market, as well as the tax cut. Demand is up 34pc so far this year compared with 2019, but new supply is still 12pc, according to Zoopla. Since the pandemic started, price forecasts have ranged from a fall of 3pc to a drop of 15pc or more. But Zoopla now says it expects prices to rise between 2pc and 3pc in 2020.
Creation of micro markets
Those moving now are taking a gamble. Will they still be able to work from their home in the countryside if things go back to the old normal? The specific demand driven by lockdown has led to the creation of superpowered micro markets, with interest strongest in leafy commuter belt towns in the South East.
Rightmove reports that the number of listed properties has increased the most in Harlow and Wickford in Essex, and Hertford in Hertfordshire.
But while demand is soaring in the countryside, towns, villages and suburbs, it is more modest in cities.
Idealism meets reality
The soaring demand reported by Zoopla and Rightmove is based on buyer enquiries and should be treated with some caution. People want to move, but can they? Many banks have shut up shop to first-time buyers with low deposits. Research published by analyst Defaqto showed that there were just 28 deals available to buyers with a 5pc or 10pc deposit. But with record low interest rates, some lenders are very keen to offer mortgages – as long as you have enough of a deposit.
This has triggered a big impact on the type of people buying. Analysis by Savills of industry data from trade body UK Finance suggests existing homeowners and cash buyers are the ones moving, not first-time buyers or buy-to-let investors.
The dreams of a post-lockdown escape are meeting the reality of the mortgage market, and the pandemic has served to widen the divide between the haves and have-nots.
The pain begins in autumn
Taxpayer-funded furlough, mortgage holidays and a ban on evictions have so far masked the looming economic reality. But all three are due to be unwound in the autumn. Simon Rubinsohn, of the Royal Institution of Chartered Surveyors, says: “The bigger risk next year ... is rather than big price drops, activity flatlines.”
The real pain will be felt by renters and landlords. While the Government has urged banks to continue support for struggling homeowners, tenants will face eviction if they rack up arrears and get no help paying rent.
A fundamental shift?
The property market is detached from economic reality. The new normal is this sense of uncertainty, an expectation prices will fall at some point this year or next, when the recession catches up. It also represents a new attitude for many buyers, in which the psychological effects of lockdown outweigh economic concerns. And it serves to entrench the divide between those who can get finance – largely people with a stake in the market – and those who can’t.
The Cotswolds and other countryside locations are proving popular after lockdown