With a large part of the economy grinding almost to a halt during lockdown and the housing market effectively closed for business until mid-May, prices have inevitably suffered.
The 1.7% drop1 in UK house prices reported by Nationwide in May may have sounded dramatic, but prices are still higher than they were a year ago. Since 13th May estate agents have been allowed to open and start showing properties again, resulting in a surge of activity showing a lot of pent up demand. In the last seven days at Chestertons we have seen a higher number of sales than pre-lockdown, up by 100%2.
Rightmove reported that the number of visits to its website reached new highs during the last week of May. Wednesday 27th May saw visits exceed six million in a day for the first time since the website launch in 2000, this was up 18% on Wednesday 29th May last year. Encouragingly, this doesn’t just reflect a release of pent-up demand as 28% of buyers had no plans to move earlier in the year.
Has lockdown impacted property searches?The restrictions imposed as a result of the pandemic have caused many households to re-think their housing requirements. A recent survey conducted by Nationwide saw 34% of respondents saying they now think differently about their home as result of the Covid-19 outbreak, especially the importance of a garden and the need for more indoor space.
With many people now viewing home working as a viable option for at least part of the week, the availability of a fast and reliable internet connection and a dedicated room to act as a home office will become more important than ever. The removal of the need to commute to an office five days a week may also change location preferences, with people happier to move further away from work to live in a less congested, expensive environment in return for a better work/life balance.
Chestertons most recent tenant survey3 65% of those asked said they would want outdoor space included in the rental of a property vs. 40% of those surveyed pre lockdown4. Pre lockdown, 20% of those asked said that their main reason for moving was for more bedrooms/ more space – whereas during lockdown 30% said the reason for moving was for more space.
By Steven Taylor 4th February 2020
The UK property market received a boost in January, as demand rose at a rapid pace and prices grew at their fastest pace since 2017, according to the new UK Cities Price Index by Zoopla.
Demand grew 26 per cent in the December 2019 to January 2020 period, as compared to the same four weeks in 2018-19. Prices grew at an annual rate of 3.9 per cent, a rate of growth not seen since September 2017, as buyers showed an increased appetite to buy.
The Christmas and New Year period is often marked by buyers starting to search for new homes, but Zoopla believed the significant rise in demand seen in early 2020 was higher than usually expected at this time.
Every UK city, except Belfast, registered a rise in buyer demand in the weeks around the Christmas and New Year period.
Scotland saw some of the fastest price growth in the index, with prices in Edinburgh rising 6.1 per cent on an annual basis. Despite this, Aberdeen was one of the greatest underperformers, with prices falling 3.1 per cent.
Zoopla believed the housing market in Aberdeen was being hampered by weak oil prices, and the knock-on effect this had on the oil extraction sector in the local economy. As a result, the average home in Aberdeen was worth £155,700, offering one of the cheapest prices in the UK.
London remained the most expensive city in the UK, with homes worth £480,000 on average. Despite high valuations, price growth in the capital was 1.9 per cent, as places experiencing stretched affordability started to adjust to meet buyer demand and budgets.
Zoopla expected UK cities, particularly in the Midlands and the North, would lead price growth in 2020, as homes remained cheaper in those areas than in London.
Richard Donnell, research and insight director at Zoopla, explained: “The cities with more affordable house prices, such as Sheffield and Leeds, have seen the greatest increase in buyer demand as house hunters continue to focus on value for money this year.”
Zoopla expected house prices to rise by an average of three per cent across all UK cities in 2020, bolstered by stronger economic growth and increasing affordability for prospective buyers. This comes after something of a pre-Brexit price slowdown in recent years, which kept price growth weak as each original Brexit deadline came and went.
The Bank of England’s decision to keep interest rates at 0.75 per cent last week could do much to keep the housing market ticking over, as the cost of borrowing remains close to zero and real wages continue to rise.
With inflation proving weaker than expected and wages outpacing house price growth, buyers find themselves in a virtuous circle of increased housing affordability.
In the meantime, low interest rates help keep mortgage rates low, encouraging people to start climbing the housing ladder, with a wider range of potential homes to choose from.
Correction: the article originally referred to Dublin, while discussing house price data from Zoopla on UK cities. In actual fact, the city in question was Belfast.
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If we are at (or approaching) the peak of the economic cycle does it still make sense to invest in the London property market now?
Yes it does, because:
- It is impossible to time markets
- There is no such thing as "the property market" ... the market is comprised of a series of "micro climates" eg affordable housing, prime luxury real estate, etc
- We focus almost exclusively on AFFORDABLE HOUSING in centres of high employment, experiencing urban regeneration, with good/ improving transport links.
- This segment of the housing market continues to experience robust demand and a chronic supply-demand imbalance
- And therefore provides consistently high returns on investment, especially on a "risk adjusted" basis, and compared to most available investment alternatives
- While interest rates remain at historical lows.
Has the housing market been adversely affected by Brexit uncertainty?
- Yes it has.
- Markets are invariably "spooked" by uncertainty.
- As such, a disproportionate percentage of property sales today could be described as "distressed sales". Nobody chooses to sell in an impaired market. They usually prefer to wait for uncertainty to abate.
- Which presents an unprecedented buying opportunity for investors with access to cost-effective secured finance.
- House prices in centres of high-employment are likely to rebound strongly as the dust settles on a "Brexit deal" with the European Union.
- As long as unemployment rates remain low (currently at 3% in London and the Southeast)