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Catching a Falling Knife – An Overview of the UK Property Market During Corona Crisis

Almost 400,000 UK property transactions worth £82 billion were paused by the pandemic lockout.

The doors have been thrown open again, but what floor has the market opened on?

If you are in the market to buy or sell a home you urgently need the answer to that question before making the biggest financial commitment most ever make. Where do you turn for information?  What do you need to know?

We look here at every aspect of the market, what the stakeholders are saying, what the driving forces in the market are, and look to the past for guidance. Embedded throughout are links to the source material you may need to review for your particular situation.

 

How did we get here?

As part of the UK wide Covid-19 lockdown, and for the first time ever, the property market was placed into suspended animation on the 26th of March with only transactions which could not be postponed allowed. A restricted reopening of the market has happened on the 13th of May, but only for England. Which Magazine have produced a useful guide to what this means in practice in England; the new market remains far from normal.

The other three nations Scotland, Wales and Northern Ireland have not changed their ‘Stay at Home’ advice so if you are in a paused transaction in those markets you have a little more time to prepare.

 

Everything has changed

In the opening weeks of the year markets were optimistic, with a stable government, the Brexit exit a certainty, full employment and inflation under control. The 11th March Budget signalled a gentle opening of the spending taps and a post-austerity narrative. Even the troubled Countrywide plc group were reporting a 9% increase in year on year sales from their 731 branches nationwide. Knight Frank were cautiously optimistic in February reporting an increase in buyer registrations and noting the Greater London and National markets were showing signs of modestly increasing growth, and the Prime Central London market continuing to fall but more gently. The outlook from 2019 through to 2024 from Knight Frank was a 15% rise nationally. Critically, the key backdrop to that prediction was based on Oxford Economics forecast for a 6.9% increase in GDP over that period with a similar increase in disposable income and, crucially, a 2.7% increase in total employment over that period.

Post-Covid economic forecasts are subdued at best, and alarming at their worst.  Pimco are predicting a U-Shaped recovery, the least worst alternative to a V-shaped bounce back however this is heavily caveated and their central prediction for UK GDP shows it still below pre-Covid levels at the end of 2021. Meanwhile the Chancellor Rishi Sunak warns of a ‘severe recession, the likes of which we haven’t seen,’ As the man best connected to the nexus of forecasters that does not bode well for either GDP or future employment. Both are driving factors in house prices.

Lucian Cook, Head of research at Savills the Estate Agents made early predictions that seemed to indicate all routes led to about a 15% increase in market values by the end of 2024, in line with Knight Franks long term outlook before Covid-19 blew in.  The latest view from Savills is similar, in that it hasn’t walked back form predicting 15% growth however it is predicting the path to 2024 will be met with a drop of perhaps 10% in prices in the coming year, as compared to 5 to 7% decline predicted by Knight Frank.

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