Ray received the keys to his new family home in north London this week in unusual circumstances.
“The estate agent threw the keys to me in a bag from three metres away. I had my gloves on. He had his on. I think he was very pleased to make the deal,” the 39-year-old told the Financial Times.
Now, even those precautions may be insufficient for future buyers. After lobbying from the banking industry, the UK government has moved to freeze the £1.5tn property market.
On Thursday, it said the majority of deals should be delayed until after travel restrictions are lifted, and banned activities such as property appraisals and visits by prospective buyers.
The guidance may bring the most dramatic drop in transactions since records began.
“There has never been a complete freeze in originations, with some banks pulling entire product ranges,” said John Cronin, an analyst at Goodbody stockbrokers, who advised the Irish government on bailed-out banks during the last crisis. “This has been so abrupt. I’ve never seen anything like it in my life, it is unprecedented.”
Around the world, the pandemic has hit housing markets. In China, residential construction came to a standstill in February, property showrooms closed and more than 100 cities banned home sales. Residential sales fell more than a third in the first two months of the year, according to China’s National Bureau of Statistics.
In New York, buyers and agents have attempted to take safety measures. “Buyers are going round houses in masks and boots. Agents are running around with disinfectant wipes. This is the new reality,” said New York estate agent J. Philip Faranda last week. But that reality was shortlived. Hours later, the state ordered all non-essential businesses to close, stopping even the most prudent agents.
The UK’s move seems to fit this pattern but it also conflates two issues. The government says it wants to hold up property moves to stop the spread of the virus. But in private the banks have been lobbying for a pause, citing other reasons to do with their own operational weaknesses and valuation worries.
Industry group UK Finance had been calling for the market to be suspended after bankers raised concerns about issues such as overloaded call centres, confusion about repayment holidays and the difficulties of viewing and surveying properties.
“The biggest issue for us is that we can’t do valuations and there’s no one to do paperwork,” said an executive at one of Britain’s largest mortgage lenders.
“If someone came and asked us for a new mortgage at a 30 per cent loan-to-value I might be able to do it without a surveyor, but at 60 per cent plus I cannot lend to you without doing an on-site valuation,” she said. “We simply cannot OK the loan . . . we are open for business, but will not do stupid things that damage the bank.”
Some banks had begun to withdraw certain product lines, mainly for loans with a higher loan-to-value ratio, where it is more important to perform physical valuations of the property.
Lloyds and Barclays were among the first major lenders to move earlier in the week, and have since been followed by Virgin Money and Santander. Specialist non-bank lenders are under particular pressure as a slowdown in capital markets makes it harder for them to raise funds. Several ceased all new lending this week.
Bankers are keen for the government to lead a co-ordinated approach in order to avoid criticism for leaving customers in the lurch.
“Without an industry-wide solution we might be exposed to customer and regulatory backlash,” said an executive at one high-street lender. “You can work with your best efforts and recognise some things just won’t proceed . . . but all the banks worry about regulatory censure.”
Goodbody’s Mr Cronin said: “Banks will not be prepared to take losses for the social good — no rational board will consent to that . . . [but] what gets them out of jail is the government telling people to postpone. They can hide behind those instructions, it helps in terms of reputational damage.”
However, not all lenders are pleased with the moves. Christian Faes, executive chairman of fintech company LendInvest, said the calls for a freeze were a reflection of mainstream banks’ weak technology and inability to deal with the recent disruption.
“There are still lenders like us that are well-equipped to operate in the current environment, and intend to continue lending, albeit with a greater sense of caution given the situation,” he said.
A window still exists for transactions to move ahead when buyers, sellers, agents and lenders are willing. The government advice stop short of an outright ban, while the law suggests both sides should move ahead.
“People are worried they can’t move: we’re in lockdown,” said Henry Pryor, a buying agent. “If you’ve made a legal commitment to purchase or sell a property, the government has not said it will stop you. But nor will it stand behind anyone accused of not honouring those commitments,” he added.
Edward Burton, a property lawyer at Maurice Turnor Gardner, said: “If you fail to complete, you have notice served on you. As the buyer, your deposit can be forfeited.”
Naturally, there is opportunism. Some buyers are holding back from exchanging or completing with the aim of pressing sellers to lower prices, said Jo Eccles, founder of SP Property Group, a London-based buying agency and property manager.
“The practical hurdles can be overcome, but are you willing to pay pre-virus prices? You might see people turn around and say: ‘if you want me to exchange this side of coronavirus, you have to lower the price,’” she said.
While some sellers will balk at such gazundering — a British term for buyers lowballing at the last minute — others may be receptive, said Ms Eccles. For example, one client wants to sell and put the proceeds into the stock market, where he sees opportunity after the recent market rout.
As well as practical hurdles the coronavirus has created financial headaches for many buyers, particularly at the top end of the UK property market, where many purchases are made using the proceeds from share sales.
With portfolios being hammered in the last few weeks, many such deals are in jeopardy. One buyer lost a £200,000 deposit on Friday because he did not want to crystallise heavy paper losses by selling shares and the seller refused to extend the completion date.
Coronavirus has reversed a property revival that began after December’s general election, seen by buyers as providing some certainty after more than three years of deliberation about Brexit.
Zoopla, one of the country’s biggest property online sales platforms, estimated a drop in sales of 60 per cent over the next three months in the UK. Property research firm LonRes said the number of sales falling through before exchange had jumped 76 per cent in March, even before the official lockdown.
Ahead of a traditionally busy spring weekend, Ms Eccles said estate agents were “looking at the situation and thinking ‘how on earth do we deal with this?’”