Is now a good time to buy?

I am asked this question a lot at the moment. People are wondering whether property prices might fall if things don’t return to normal, if there are future lockdowns, and if there are large parts of the population that might lose their jobs after the governments furlough scheme ends and the second and final payment to the self-employed sole traders (where eligible) ends after the August payment.

Could property prices fall?

Of course neither I nor anyone else quite knows what will happen because this whole situation hasn’t happened before. I do, however, have some thoughts on the subject. The key events that have the potential to reduce property prices are unemployment, reduction in demand due to fear partly driven by the media, or inflation leading to an increase in interest rates. There is a fourth element which is of course availability of mortgages (my next article will focus on this). A fifth element could even be the weather! I shall look at each one in turn.

Property prices are likely to be affected in arrears that are heavily focused on large firms or sectors that employ a lot of people. No doubt property prices in the Crawley area for example will be affected by large scale redundancies in Gatwick as well as other towns reliant on their airport for employment. Rolls-Royce said around 9,000 jobs would be lost in the UK thus it could have an effect on properties in Derby amongst other locations.

Fear or consumer confidence can have a big effect. If people are too scared to leave their home due to the situation portrayed on the news or worried about losing their job, then demand is reduced. If in some areas people are desperate to sell and the buyers are too nervous then the sellers might drop their price a lot just to get sold.

Now for people that have been furloughed by their employer or self-employed (where eligible) that have received ‘helicopter’ money from the government under their Self Employed Income Support Scheme and have not been able to spend it in restaurants and leisure activities until now, they might start spending a lot on the high street. Now, if production has been affected by the lockdown whether in the UK or overseas then the reduced supply of goods and increased demand could increase the prices of those goods and therefore stoke inflation. The Bank of England could then increase interest rates to reduce demand. Higher interest rates mean mortgage payments are higher, and therefore deter first time buyers or home movers from taking on or increasing their mortgage by upsizing for example. Less demand on housing could then mean property prices could fall.

I personally do not think that the Bank of England will increase rates. Certainly not by any significant margin. Firstly, if they do, then that will stifle any growth the UK is trying to achieve in the economy because both individuals and businesses’ cost of borrowing would increase. Secondly, the government has a huge budget deficit, that has been significantly increased due to support for firms and businesses affected by the coronavirus situation. If the cost of borrowing went up then the interest payments the government would have to make on that debt would therefore go up which would mean less funds in the government coffers to pay for things like schools, the NHS and roads for example. I don’t think it will be very popular for governments to do this with the electorate.

What about the availability of mortgages? If lender criteria tightens in terms of how much they lend to reduce the risk or stops lending at higher loan to values then that can prevent a lot of first time buyers joining the property market and thus making it difficult for homes at the lower end of the market from selling and thus bringing much of the market up from there to a halt. Mortgage lenders want to lend but things have got tougher lending wise since lockdown. If they restrict it more, then it could have a serious effect on the property market and therefore prices.

The weather could have an effect too. If there are still lockdown issues in the autumn and we get a significant amount of rain and wind between October to April let’s say then people might be struggling to stay positive queueing in supermarkets getting soaked as the wind blows their supermarket own branded brolly inside out! Moving home might be the last thing they want to do. Getting home and watching Netflix in bed whilst eating a family pack of tortillas and an extra large bag of Maltesers might be the greater priority than moving home.

The biggest factors that affect property prices generally are recessions, wars, and interest rates. Whilst I do not think interest rates will increase, we are in a recession (how long it will go on for remains to be seen). The media talks about the coronavirus like it’s a war when it’s using war analogies like ‘front line’ staff of the NHS and much talk of the need to ‘fight the virus’. Although it is not a war the effect on people lives and the economy might suggest the effects are similar to that of a war on employment and mental health for an example. Personally, I only think interest rates increases would have the effect of reduced property prices. If the world’s central banks stopped printing money to prop up their economies this would reduce prices too but they seem hooked on it. Should they stop doing it then we really will see a massive global recession and drop in property prices. I think money printing or MMT (Modern Monetary Theory) as it is now known will continue for quite a while yet.

Could property prices increase?

Valuations have held up broadly in most arrears since the lockdown has relaxed. The recent Stamp Duty Holiday announced by Rishi Sunak which gives a saving of up to £15,000 if you bought at £500,000 or above until 31 March 2021 will only increase property prices. Prices might fall for example in April 2021 when the Stamp Duty holiday ends. It would have made sense to have introduced this tax break if property prices had fallen by a reasonable amount to support it but that has not been the case. It seems the chancellor has found not just a magic money tree but a forest of them!

A further factor to consider unfortunately is there may be more demand due to relationships breaking up. Couples or families having spent months at home together might have been the tipping point of a relationship that wasn’t working and now two homes are needed not just one. That would increase demand.

Make a decision

The only advice I would give with regard to buying your first home or moving home is that if you are concerned about falling property prices make sure you’re happy to be there several years to ride out any period of a large drop in prices or movement in the market. You could wait to see if house prices will drop before you buy, but that if you wait too long you may miss out. It’s always difficult to predict the bottom of the market. In my experience if you use your intuition or common sense that can be a pretty could steer. Ultimately, it’s just making a decision and sticking to it.

The next article will give a glimpse into how the lockdown has affect mortgage lenders appetite to lending and how that might affect people’s ability to get a mortgage.