The beginning of a property recovery?
Alpa Bhakta is CEO of Butterfield Mortgages Limited
On 13 May, the UK government altered its lockdown guidance by allowing property transactions to once again continue.
Despite the process of moving house never being explicitly forbidden, social distancing requirments and the economic shock of COVID-19 meant that property professionals and businesses (conveyancers, developers, estate agents) were caught on the backfoot.
Many were simply not prepared, and with the majority of buyers and sellers temporarily retreating from the market, the volume of completed property transactions fell.
This was especially frustrating given that, at the beginning of the year, UK property was entering into a period of sustained house price growth.
The Boris Bounce seemingly put an end to much of the uncertainty concerning Brexit, resulting in domestic and international investors flocking to the UK real estate market.
With the number of COVID-19 cases dropping dramatically, social distancing measures are slowly being relaxed. For those of us in real estate, the question now is determining when things are likely to return to normal.
Importantly, as we begin the process of exiting lockdown, there are subtle signs that a property recovery may already be in the works.
Signs of renewed growth
At the beginning of this public health crisis, various property specialists and lending groups presented their own predictions of how UK property would be affected.
The specifics of how much these groups thought house prices would fall varied greatly, but the majority forecasted a drop of approximately 7%, which was in line with Knight Frank’s own predictions for 2020.
However, property prices have not actually experienced the drop many were fearing, yet. In fact, last week Halifax released their monthly House Price Index (HPI) which showed that the rate in which property prices were falling was already slowing down.
If the more pessimistic predictions, such as Deutsche Bank’s forecast of a 20% downturn, were true it’s unlikely that we would be seeing only modest month-on-month falls of 0.2%, as this HPI shows.
In the short-term, it is natural to assume a drop in house price growth as a result of social distancing measures. However, this is not a cause for concern.
House prices are not dropping because demand is not there—they are droping because buyers are waiting for the opportune moment to make their return. It might be that a recovery begins even sooner and increased activity in the property industry facilitates a quick return to the levels of growth we saw in January.
In the long-term, however, I am more confident in my optimtism. Property experts Savills made a seemingly controversial choice when they announced they weren’t changing their 2019 five-year forecast.
This forecast anticipates house prices to increase by 15% by 2024 despite the challenges posed by the coronavirus pandemic.
Of course, all of this comes with the caveat that we don’t know exactly how this pandemic will ultimately play out. A virus mutation, second spike or revolutionary vaccine could alter the course of recovery for better or for worse but, as it currently stands, the short-term dip seems to be playing out in a relatively mild manner and the long-term prospects for UK property remain strong.