3 Things under the New Normal for Britain's housing market

The new normal for Britain’s housing market is not very discouraging, contrary to what some might believe. According to Bank of England estimates, property prices will fall around 16 per cent during the year 2020. In fact, asking prices for homes have already fallen by 5 per cent since March 2020. Housing prices have been particularly hard hit in Yorkshire, East Anglia, North-West and West Midlands, falling by around 16 per cent in 2020.

The biggest reason for the housing downfall will be coming from the rental component since the capacity to pay rents by tenants has fallen due to job losses and pay cuts.

Estimates also suggest that the GDP in the UK will get reduced by 14 per cent during this year.

Even though we cannot negate the fact that the UK housing industry will have to bear the brunt of the coronavirus pandemic, there is a silver lining to the clouds. We need to note that pending housing deals between buyers and sellers have not been cancelled, they just have been put on hold.

So, what are the good things in this scenario? Let us have a close look at them.

1. Housing transactions have been permitted

There were almost no real transactions taking place in the residential spaces after the nation went into lockdown on March 23 this year.

As per the latest Government announcement, starting from May 13, people have been allowed to step out of their homes to meet a property dealer or to visit a home that they may wish to purchase, sell or rent. Moving homes is also permitted. The only condition is to follow the stipulated social distancing measures alongside. Builders have been allowed to more flexible working hours for the construction sites, smaller developers who are struggling with cash flow have been allowed to delay payments to the local council. Developers can now publicise their planning claims through social media rather than the previously relied on posters and leaflets way of publicising.

This is a very encouraging move for the growth of the residential housing market.

Further, property dealers are now allowed to list new properties. They may open their offices as well. At least 4 lakh buyers and tenants might move homes with this provision, who had planned to do so before the lockdown.

According to industry experts’ calculations, housing transactions worth around £100 billion are expected to take place with this move, which got stalled due to the imposition of the lockdown.

Additionally, builders have been allowed to construct homes, with health safety measures in place. They can also start publicising their plans using social media.

2. Low-interest rates to boost demand

At the same time, people with a stable income during this year are likely to decide to invest in residential property, given that interest rates are so low. This will strengthen the housing market recovery.

To minimise the impact of the corona led recession, the Bank of England had lowered the interest rates to the lowest ever level of 0.1 per cent on March 19 this year. (A week before that it was lowered from 0.75 per cent to 0.25 per cent.) This sudden fall is definitely going to lure more home buyers to the market in times to come.

3. Housing market growing steadily since H2 2019

As we can recollect, after the Brexit crisis, the housing market had started to recover during the end of the year 2019. So, it was already in a phase of recovery before the corona lockdown began. The average housing prices in the United Kingdom had touched their highest level in the second half of 2019 (refer chart below).

(Source: Office for National Statistics) – UK House Price Index

In fact, 2020 also began with good news for the sector. The UK house prices averaged at £230,000 in February 2020, which was almost 1 per cent rise over the same month last year. The mortgage approvals for home buys increased to 73,546 in February 2020, the maximum observed figure since 2014, as per Bank of England estimates.

Besides, we are aware that the UK housing industry is not one of the root causes of the national economic downturn this time; it is the overall effect of the pandemic. So at the fundamental level, the industry is at a secure footing and is likely to be one of the first mover sectors to bounce back and showcase a rebound of the housing demand, once corona is eradicated and the UK economy is also fully functional. In fact, the pent-up demand during the entire lockdown period will spark growth momentum. Just ahead of the outbreak of the pandemic, it was estimated that the gap between the number decent home needed for everyone to live in and the housing stock available was almost a million. Another factor of the rise in demand could be the change in people’s perception of living, as there is growing inclination towards moving out of city to the countryside. People are of the view that work from home could also be a new normal, and staying away from the densely populated city area with risk of contagion would be a better idea.

So, it is predicted that the UK housing industry will showcase a strong recovery in the year 2021.

A word of caution though

No doubt, a resumption of work in the housing sector will play a major role in serving the economy recover, as well as providing the homes the country needs. But the recovery being predicted by experts is conditional upon pertinent factors like a quick bounce-back of the overall economic growth and the majority of Britons who have lost their jobs due to this pandemic getting back to work again.