One thing’s for sure. If housing was a huge political issue before the coronavirus struck, it will be an even bigger one when this crisis eventually blows over.
If I have to see one more press release from the property industry, pretending everything is right as rain, I will have to do a lot more social distancing from my inbox in future.
Because let’s face it: the market is not what it was. It may have opened up last week but even a temporary shutdown and abeyance in housebuilding – not to mention the fact lenders and landlords are offering mortgage or rent holidays at a record rate – all suggest a very different landscape ahead.
Previously, the market massively favoured homeowners over renters. It’s true that in recent years, tenants have been getting more rights, relatively stable rents and the introduction of products like the Help to Buy and Lifetime Isas to help them save more for their first home.
But homeowners have largely had the upper-hand. Mortgages have also been super-cheap thanks to the Bank of England base rate remaining below 1%. After the 2008 financial crash caused a blip in house prices, they lifted off again and have kept rising in most desirable areas, thanks to a continued housing shortage.
But perhaps this crisis will see the housing price bubble pop at last. And if it does happen, it will be because everyone is a bit poorer. Let’s look at what’s happened to housing in recent weeks, and whether there are any causes for optimism.
Half of UK renters are worried about the impact Covid-19 could have on their living situation, according to Opinium research, and almost 60% say they have had their employment impacted in some way.
No surprise, then, that two fifths of renters whose work has been impacted have struggled to pay rent, bills or other essentials such as food, and a quarter have either had to voluntarily leave their home, move in with friends or parents, or request an early end to a tenancy. A third have sought financial help, with 13% applying for Universal Credit to help with rent payments and 11% borrowing from friends and family.
The government’s response has been to ban evictions for now, to lift Universal Credit to cover the cheapest 30% of rents in an area, and to announce a £500m hardship fund for struggling tenants.
But those who are not struggling are likely to be aiming to leave the sector and buy their own place one day.
One in eight of all renters, and one in four of those whose employment has been impacted, have already had to dip into savings to pay for day-to-day life.
And most will probably find it harder to top up their savings or keep a regular plan going.
Landlords are worried too. We have become a nation of part-time landlords and three-quarters are worried their tenants will not be able to pay all or part of the rent, and almost as many are concerned that their tenants will vacate leaving them with an empty property.
Meanwhile the housing market has entered a “Mexican stand-off”. It may have re-opened last week, but buyers are aggressively haggling for up to 20% off the previous selling price.
But smart sellers will surely go to ground, unless they are distressed, because we all hate to accept a lower price for our property than the one someone up the road achieved last month or last year.
What does the future hold?
That spells potential trouble for anyone who owns a newly-built home, which like the brand new car in the showroom is always prone to lose value as soon as you get the keys.
And for first-time buyers getting a government leg-up through the Help to Buy equity loan scheme (not the Help to Buy Isa), it means they could find themselves in ‘negative equity’, where they now owe more than their home is worth.
That’s because the scheme has tended to inflate the prices of new Help to Buy homes in a neighbourhood. It’s especially likely if they had a 95% mortgage to start with.
If that’s you, the remedy is to sit tight and wait for better times…
Of course, the reason prices in this and other parts of the market will probably fall is that buyers have less borrowing power. Their incomes or their savings may have been hit, and lenders will feel less generous. One of the biggest lenders Nationwide won’t currently offer a mortgage of more than 75% of property value, which means they are closed to most younger buyers.
Property website Zoopla reported a 40 per cent drop in inquiries at the end of March, making it look more like Christmas. New listings are down by more than 50%, and agent Savills forecasts a short-term price drop of between 5 and 10 per cent. Airbnb landlords will have taken a big hit and many may switch to long-term letting, or sell up.
A third of people in the UK were planning to buy and/or sell a property this spring, according to one national study, and they now expect to have to sit on their hands for an average five months – until the autumn at least.
Two forecasters, Capital Economics and Knight Frank, both say the overall effect on prices could be as low as a 3% drop – which sounds optimistic – with recovery starting in 2021.
There is a silver lining for existing borrowers, in the form of even lower mortgage rates. Mortgage brokers hope cash-strapped borrowers will take advantage of the ultra-low fixed term deals to re-mortgage, claiming that the saving on an average mortgage against the typical standard variable rate is £344 a month.
The outlook for housing remains deeply uncertain. But those already on the housing ladder should take comfort from the fact that desire to own property is unlikely to change post-COVID. If anything, the lockdown should concentrate minds on just how much a loved home – with private outside space – matters. Plus, areas outside busy cities are also likely to become more attractive as more businesses and employees realise how much can be done remotely.
If you’re renting, get to know your rights around deposits and evictions. Keep communicating with your landlord to maintain good relations and avoid misunderstandings. Longer-term, be clear about why and where you want to buy. It’s much better to keep renting than to buy the wrong place in the wrong area at the wrong time.
Resist crutches like the Help to Buy equity loan scheme, where you’re at risk of buying an overpriced and poorly-built home. Instead, save for longer to build a higher deposit and get access to better mortgage deals, ideally using the Lifetime Isa if you’re absolutely committed to the home-buying dream.