Nick Morrey on the Property and Mortgage Markets Post-Lockdown

Written on 17 June 2020

Nick Morrey on the Property and Mortgage Markets Post-Lockdown

The property market has had many highs and lows over the years but it’s normal for there to be a bit of a slowdown and then a gradual rise. Recently there was a drop after the Brexit Referendum, followed by a significant reduction in the number of property transactions over the next few years until Boris Johnson announced “his” election.

From November last year to lockdown, the property market was going from strength to strength, not only with the number of transactions but with many regions reporting increases in prices as well. Then came the COVID-19 lockdown. Estate agents could no longer organise viewings and lenders were suddenly unable to instruct physical property inspections. This lasted from late March until mid-May. The abrupt and enforced closure of the property market was always going to have a negative affect and duly enough, price reductions were reported. 

That said, the Office for National Statistics declined to issue some property statistics, claiming the number of transactions were so low that conclusions shouldn’t be drawn. However, the property market reportedly accounts for roughly 6% of GDP, so the government couldn’t let it totally stop for long.

Since restrictions were lifted on estate agents and valuers in mid-May, there have been many reports of significant increases in property enquiries. Rightmove have just reported an increase in asking prices of 1.9% compared to pre-lockdown levels. 

This increase in activity and prices is understood to be the result of drawn out and pent up demand, as well as the relatively low lack of supply, therefore it’s likely to carry on in the short term.

Economists are forecasting some wildly differing price drop spreads for the medium term though.  These vary from a reduction in prices of 6% to 20% in the next 2 years. Causes for this include expected redundancies and general economic woes that are likely to be felt for the next year and a half.

What these economists seem to be forgetting is that when house prices fall, sellers often simply choose not to sell. It’s often the case that when demand falls - causing prices to fall – supply then contracts and the market slows, finding a new equilibrium. Therefore, we feel that any market fall will likely be towards the less dramatic 6% mark. We shall see what actually transpires.

With regards to mortgages themselves, rates are still at pretty much the lowest levels we’ve ever seen. Taking out a mortgage has never been cheaper and, with 5 year fixed rates starting at 1.39%, borrowers could secure such low rates for half a decade. There seems to be little prospect of the Bank of England restoring the base rate to 0.5% any time soon and it’s also unlikely that they’ll be able to increase it to higher levels for at least a year - if not 2 years or even longer.

The current issue for lenders is not lending money, of which they have access to plenty, but providing products at high LTVs (loan-to-values). The reasons for this are more to do with processing capabilities than anything else. 

A few lenders are worried about the possibility of a severe downturn in property prices - which is understandable - but if they don’t offer 90% and 95% products then it’s unlikely first-time buyers will be unable to finance a purchase. This would almost certainly precipitate a problem in the housing market and could result in a self-fulfilling prophecy of their own making. We do expect more lenders to return to the aid of first-time buyers soon though.

Use our best buys tools for the latest mortgages available for first-time buyers and homemovers, or call us on 0330 433 2927 to speak with an adviser about which products and LTVs are returning to the market.

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