Butterfield Mortgages CEO Alpa Bhakta offers us her views on the state of the UK property market. In this article she looks at the potential short-term impact of COVID-19 and what we might expect to see in the future.
On 13 May, the UK government’s COVID-19 guidance was altered in an attempt to restart England’s housing market. Although the government never explicitly forbade people from moving home, social distancing measures implemented to combat the coronavirus outbreak made it difficult for the majority of buyers to complete on transactions. What’s more, the number of mortgage products available to buyers had decreased, with major lenders retreating from the market to reduce their risk exposure as a consequence of the virus outbreak.
Already, the lifting of certain lockdown measures is having an evident impact. Both property listing sites and estate agents have recorded a spike in enquiries. Onsite valuations and viewings can once again take place. Based on the volume of activity witnessed at the beginning of the year, this initial surge in activity comes as no surprise. Real estate remains an attractive asset, and demand never really disappeared.
Make no mistake—while we could be witnessing the beginnings of a market recovery, we do need to put things into perspective. Yes, the number of COVID-19 cases is dropping, but there is also a risk of more infections occurring as lockdown measures are lifted. We are in a state of limbo, and while there is good reason to be optimistic about the future, the next few months will reveal just how long-lasting COVID-19’s impact on UK real estate will be.
A slow but stable recovery
Given the circumstances, it is inevitable property prices will suffer a short-term dip. After all, one cannot reasonably expect price growth during the biggest earnings shock in modern economic history. In these extraordinary circumstances, even the most experienced property investors will be watching the market closely to determine when it would be an ideal time to once again re-enter. This will not happen overnight.
The question property commentators are asking is how significant a short-term house price drop will be and how long it will take for prices to recover to pre-COVID-19 levels. One forecast anticipates a downturn of up to 23% (according to Deutsche Bank); however, I am more optimistic. Indeed, there is another study which predicts a more manageable fall of approximately 7%.
In the long term, I’m far more confident in my optimism. Although caution should still be exercised when needed—I see no reason why we should not see an increase of up to 15% in general property prices over the next five years.
Global property agents Savills definitely concurs with such a view as, even after the worst of COVID’s effects on the property market, they are sticking to their forecast of a 15% general price increase by 2024. This itself may not even be the upper limit of the potential growth—as this forecast was based on the assumption that the Bank of England base rate would rise to 2%, not be kept at the 0.1% that was announced early in the government’s economic relief packages.
This will be especially good news for those involved in prime central London (PCL) property, given its higher propensity for rapid price growth and added international investment attraction. Q1 2020 saw a 0.2% increase in PCL prices. What’s more, with the value of pound sterling fluctuating, this could instigate more foreign buyers acquiring property at substantial discounts, especially if using the US dollar.
There is also a bigger question concerning those lenders who decided to retreat from the market once social distancing measures were first introduced. At the moment, buyers have been turning to smaller, more specialised lenders who have been able to adapt to the challenges posed by COVID-19. These lenders have been instrumental in ensuring applications can still be processed, particularly for prime property mortgages and borrowers with complex income structures.
There are many things still up in the air when it comes to understanding the immediate and long-term impact of COVID-19 on the property market. A property recovery could be underway; however, if there is a second spike of cases as a result of lockdown measures being lifted, much of the initial gains we are seeing could be quickly lost. As it stands currently, I believe any short-term dip will be comparatively mild, and those involved in property should see positive returns heading their way soon.
This article was written by Alpa Bhakta, CEO, Butterfield Mortgages Limited.
Alpa Bhakta is CEO of Butterfield Mortgages Limited, part of the Butterfield Group and a subsidiary of The Bank of NT. Butterfield & Son Limited. Butterfield Mortgages is a London-based prime property mortgage provider with a particular focus on UK and international HNWIs.
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