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Coronavirus-hit buyer confidence will translate into short term house price falls of between 5 and 10 per cent, said researchers at international property agents Savills.
But such a drop would be smaller than the price falls experienced in the early 1990s recession or in the Global Financial Crisis, suggested authors of the firm’s May UK Housing Market Update, Ed Hampton and Chris Buckle.
The pace of recovery in prices after the initial falls will depend on the state of the wider economy, although the signs are not too encouraging. The May forecast from Oxford Economics anticipates the UK’s Gross Domestic Product 0.7 per cent lower by the end of 2024 than it expected in April, says the Update. ‘This will have a knock-on effect on household incomes’.
On the plus side, interest rates are also now expected to be lower for longer. ‘Our November forecast for 15 per cent UK house price growth over the five years to 2024 included an assumption that the Bank of England base rate would rise to 2 per cent by the end of that period. Oxford Economics’ current forecast is for it to be 1 per cent’, say Hampton and Buckle.
‘The trade-off between borrowing costs and income rises will determine the medium term outlook for house prices, once the initial crisis has passed’.
But at least the market is moving again. And ‘short term activity will be supported by a degree of pent up demand and some buyers may now have a greater inclination to move following lockdown. There is now particular emphasis on moving for more space, and to the countryside.
It is also possible that the new homes market may recover faster, due to it being easier to perform virtual and socially distanced viewings in new build homes.
‘While this bodes well for an increase in activity, it is starting from the exceptionally low levels observed during lockdown. Data from the main property search portals suggests that sales agreed and new listings were at around 10 to 20 per cent of the levels seen immediately before the lockdown, although buyer browsing levels have been higher’.
Low activity levels are also reflected in mortgage lending data. New mortgage approvals fell to their lowest level in March since early 2013. The drop was particularly sharp as it followed an exceptionally strong February, which had been the strongest month since early 2014, said Savills.