New normal: The impact of the coronavirus on our housing market
Craig McKinlay is new business director at Kensington Mortgages
In my last piece on the Budget, housing reform had to, quite rightly, take a back seat.
Now looking back, even though it only happened two months ago, the Budget seems like it was a lifetime away.
In that time, physical inspections and viewings were put on hold, and near the end of March, the government stopped all housing transactions from taking place, in effect freezing the market.
But now we are starting to see the first steps to a return to normal.
Lenders are returning to market, estate agents’ offices can open, viewings are permitted, show homes can open, removal companies and other essential parts of the sales process can reopen again.
All providing social distancing guidelines are adhered to.
No one has a crystal ball, and although we can only speculate on what the long-term outcome will be until the facts and figures confirm, this is the first sign that we are getting the ball rolling again.
Although the market has officially restarted, it will not be working at 100% capacity for quite some time.
This applies across all cohorts – builders, developers, buyers, sellers and lenders alike.
The short-term will be patchy and different customer groups will have varying levels of demand.
There is also a huge backlog we need to process – a total of 373,000 housing transactions are on hold due to the coronavirus – amounting to £82bn, according to Zoopla.
Pent up demand is a good thing during this time, helping give the market a needed boost, but it does mean it is going to be extremely busy for a short period of time while the backlog is processed.
It will then begin to quieten down and stabilise, and then we will hopefully start to see lenders return to high loan-to-value ratios (LTVs) and other specific product ranges relaunch.
While lender criteria may tighten for the foreseeable future, until there is more clarity and sufficient transaction data, they will ease themselves back into the market, albeit with a more risk averse stance.
Remortgage demand remains high.
Regardless of a homeowner’s circumstances or income, it is usually better for clients to remortgage than move onto a lender’s standard variable rate.
Near the end of this month, a significant number of homeowners will be coming to the end of their fixed rate deal.
Although there’s no denying that product choice is more limited than usual, lenders are trying their best to help customers remortgage through automated valuation models (AVMs) and provide accessible funding options, as customer demand for cheaper rates is still very much there.
While there will be a backlog, physical valuations can now start again which will significantly help.
There’s no reason why clients shouldn’t carry on with their remortgaging plans as before and switch to a cheaper rate.
Ultimately, brokers are more than ever a sign of reassurance during these times to help them through the process.
Latest figures from the Centre for Economics and Business Research (CEBR) show asking house prices could drop by more than £30,000 due to the coronavirus crisis, and recent Royal Institution of Chartered Surveyors (RICS) data confirmed that nine in 10 surveyed expected to see a fall in sales over the next three months, the worst reading since RICS began asking this in 1998.
However, during times of crisis, housing should not primarily be a form of investment, but a roof over your head.
A house price drop will benefit first-time buyers (FTBs) and professional buy-to-let (BTL) landlords – both of whom will be looking to buy when prices are affordable.
However, there is going to be a real constraint on individuals being able to save for a deposit over the next year.
And with high LTVs lacking, FTB activity is going to be quite depressed compared to the wider purchase pipeline.
However, the government is rumoured to be extending the Help to Buy scheme – confirmation of this would boost confidence in the short to medium-term and bridge the gap between lenders and first-time buyers around this issue.
No one has experienced anything like this.
In an incredibly short timeframe, customer circumstances could have changed significantly.
This is the time for lenders to learn, adapt, and understand that there will be new customer needs.
Lenders therefore need to treat furloughed customers sensibly and fairly, preparing for any changes such as variable income and employment shifts.
Every downside has an upside
Ultimately, what happens now is going to be very different from the long term.
While building back up demand and confidence is the main issue now, the same underlying factors around lack of supply and too much demand will soon creep back again.
The main priority now is to look after those who need help the most, but it’s positive to see the market beginning to return to normal.
In order to fully restart the housing market though, and sooner rather than later, more government support will very likely be needed further down the line.