Mortgage lender Nationwide released their monthly house price index today, which suggests that average values decreased by 1.7 per cent in May when compared with April, the largest monthly fall since February 2009 after taking account of seasonal factors. The annual rate of growth is still in positive territory, however, with an average increase of 1.8 per cent when compared to May 2019.
Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist, explained: “In the opening months of 2020, before the pandemic struck the UK, the housing market had been steadily gathering momentum.
“Activity levels and price growth were edging up thanks to continued robust labour market conditions, low borrowing costs and a more stable political backdrop following the general election.
“But housing market activity has slowed sharply as a result of the measures implemented to control the spread of the virus. Indeed, data from HMRC showed that residential property transactions were down 53 per cent in April compared with the same month in 2019.”
Robert suggested the pandemic may impact the UK housing market in several ways, citing behavioural changes and social distancing as potentially having an effect on transaction levels for some time.
According to a recent survey conducted by Nationwide, approximately 12 percent of the population had put off moving as a result of the lockdown. That said, the research also indicates that most have viewed the current situation as a temporary pause in the market, with prospective buyers now planning to wait for six months on average before starting their property search.
“Peoples’ housing preferences may also be impacted. Indeed, 15 percent of people surveyed said they were considering moving as a result of life in lockdown, with 34 percent stating they 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,” added Robert.
Jeremy Leaf, former RICS residential chairman was circumspect about today’s report: “The extent of the car crash that hit the property market in May is laid bare in Nationwide’s report of the largest monthly fall in house prices for over 11 years.
“However, this nadir seems to have marked the bottom as activity and especially new listings have improved considerably since lockdown restrictions were eased but viewings are understandably taking longer due to infection concerns.
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“Uncertainty remains as to the direction of travel for values in some price ranges and locations until momentum begins to build again. The market feels a bit like returning after the Christmas and New Year break, with buyers and sellers waiting to see who will blink first as prices establish their post-Covid level.”
Mark Harris, chief executive of mortgage broker SPF Private Clients agreed, and said: “While the housing market has been hit hard by the pandemic, as lockdown eases there are signs that things are returning to something approaching ‘normal’.
“Lenders have remained willing to lend throughout but have been hampered by the inability to conduct physical valuations and the need to meet demand from borrowers seeking mortgage payment holidays.”
Mark continued: “As physical valuations return, lenders are able to offer higher loan-to-values once more, returning to larger loans on the high street and in some instances interest-only borrowing. With some lenders cutting mortgage rates to ever lower levels, they are sending out a clear message to borrowers that they are open for business.”
Guy Gittins, Managing Director of London estate agency group Chestertons is also pragmatic about the month on month drop in values and observed: “A 1.7 percent drop in prices in a month is dramatic but not as steep as many had expected and prices still remain nearly two percent higher than they were this time last year.
“The property market was basically closed for two months so a price decrease was almost inevitable, but mainly reflects sellers being slightly flexible with price at a time when very few people were willing or able to move.”
Echoing the Nationwide’s survey findings, Guy continued: “This pandemic has changed the way we live and it is bound to have an impact on what people look for in a home, whether that be more outside space to enjoy the sunshine or an extra room to be used as a home office.
“However, it will be interesting to see whether these preferences continue once things get back to relative normality.”
Of course, the resounding question for many today will be what this all means for property prices over the next few months. Do today’s figures mark the start of a property price downturn?
Robert Gardner concluded: “The medium-term outlook for the housing market remains highly uncertain, where much will depend on the performance of the wider economy.
“We have already seen a sharp economic contraction as a result of the necessary measures adopted to suppress the spread of the virus. Indeed, the 5.9 percent decline in UK economic activity recorded in March was only a little less than the decline recorded over the entire financial crisis.”
“However, the raft of policies adopted to support the economy, including to protect businesses and jobs, to support peoples’ incomes and keep borrowing costs down, should set the stage for a rebound once the shock passes, and help limit long-term damage.”
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Published at Tue, 02 Jun 2020 08:50:00 +0000