The on-going Coronavirus pandemic has taken world economies by the storm, including the UK’s economy. How badly will the pandemic hit UK house prices in the actual context? Experts predict UK house prices will fall by 7% this year.
You know what they say, “there is no place like home.” But this saying isn’t quite so pleasant of thought now after people had to respect lockdown restrictions and were locked in their homes or apartment for several months.
Yet, it seems that the Coronavirus pandemic change more than people’s perception of their homes. It may also have a huge impact on property markets worldwide.
In the UK, the on-going pandemic had, and still has, tremendous consequences on the country’s economy. Impacts of the pandemic, such as significant unemployment, wage cuts, business failures, as well as job uncertainty, have most likely made people be more cautious about making such a massive investment as buying a home. Typically, as trends change among home buyers, the market suffers, leading to falling house prices.
Pandemic’s Impact on the UK Economy
Like most countries battling with the on-going COVID-19 pandemic, the UK is facing a state of lockdown led by the measures of social distancing.
In March, as the pandemic began to have an effect in the UK, there was a significant economic impact. In the first quarter, GDP shrank a little more than first estimated by the authorities. In fact, it seems that the first-quarter contraction was the joint’s most significant drop since the July-to-September period back in 1979.
Aviation, retail, hospitality, and leisure are among the hardest-hit sectors in the UK. But, as jobs have been cut massively around the UK because of the impact of Coronavirus, other sectors have been affected too, including real estate.
Official data shows that the number of employees on UK payrolls fell by 730,000 during the March-July period. This is the most massive fall in employment in a decade. Moreover, another impact of the on-going pandemic is remote work. Data from ONS show that 30% of adults in the UK were exclusively working from home at the start of July. However, since the 1st of August, employers in the UK can allow their staff to come back into their offices if they feel safe to do so. Yet, research suggests that 91% of office workers in the UK would instead like to continue to work from home, at least partially.
So, with people across the country losing their jobs and many businesses continuing work remotely, homeownership and commercial property buying are unlikely to be a priority.
Will the Stamp Duty Holiday Save the Property Market in the UK?
Until the 8th of July, all homebuyers in England and Northern Ireland had to pay stamp duty when purchasing properties over £125,000. Yet, since the 8th of July, Chancellor Rishi Sunak issued a stamp duty holiday to support the real estate market during the current unfavourable context.
The stamp duty holiday is a temporary measure that removes tax on the purchase of homes worth up to £500,000. And, now, property experts hope that the stamp duty holiday measure and relaxed lockdown restrictions will help protect the UK house prices from falling sharp this year. And, according to recent data, enquiries to real estate agents for properties priced between £450,000 to £500,000 have increased by 49% since the stamp duty holiday was announced.
At the height of lockdown, real estate experts forecasted that the UK house prices would fall by as much as 10% due to the consequences of the on-going COVID-19 pandemic. But can the stamp duty holiday turn things around and protect UK house prices from a sharp fall?
It seems that June was a more optimistic time for the real estate market in the UK. A survey conducted by the Royal Institution of Chartered Surveyors found that a net balance of 12% of respondents predicted that the prices would continue to fall in the following three months. This is a major difference if we compare it with minus 43% when respondents were surveyed in May.
Moreover, the survey also discovered that June was also the month when home buyers returned to the market with a net balance of 61% of RICS members reporting a rise in new buyer enquiries.
Plus, it seems that the pandemic has also changed home buyers’ preferences. Data shows that there has been a significant rise in the number of people who are searching for popular search terms related to homes away from town and city centres. Now, people are looking for homes with large gardens and spaces where they can set up a home office.
Now, although this may not be a permanent trend, it is definitely a temporary one driven by the Coronavirus-related lockdown restrictions, which made people think about how and where they live and work.
There’s one more trend in the real estate market in the UK that is gaining traction right now driven by the impacts of Coronavirus pandemic: a rise in rent areas. How did this happen? As people we locked inside their homes, e-commerce retail has grown immensely, meaning that the commercial property sector is seeing some dramatic changes. As people realize how many things they can buy online, physical stores aren’t as crucial as they were before the virus struck.
However, there are still many services such as cafes, hairdressers, or beauticians, that people still can’t get online. So, as renting is definitely cheaper than actually purchasing a property, business owners who offer these types of services prefer to rent spaces instead of purchasing them.
Although the real estate market is still fragile right now, the stamp duty holiday might breathe life into the property market, encouraging more homeowners to move or purchase their first home.