The Effect of Coronavirus on the UK Housing Market

This blog was written by Steven Whitehead, our Financial Planner and Secured Lending Specialist.

With current headlines of Covid-19 infection rates on the increase, a second lockdown, and increasing fear of job losses on the horizon, it all paints a gloomy picture.

So why is the sun shining on the housing market?

Changes to the housing market

At the start of November, the Nationwide Building Society reported that house prices rose at their fastest rate for 5 years in October. There would appear to be a number of factors that could be considered; the first being a surge in house sales after the first lockdown ended, which created the impression of a property boom, and a shortage of available properties resulted in house prices getting pushed higher and higher as estate agents set deadlines for offers to be made under a “sealed bid” scenario.

Or it could be as a result of the Government’s generous Stamp Duty Holiday, which sees the Stamp Duty threshold increased to £500,000 before it is paid on a main property purchase. This would result in a £15,000 saving on a purchase price of £500,000.

However, the mortgage market does not appear to share the same level of enthusiasm as the estate agents and the media as they proceed with a greater level of caution and scepticism at the rising house prices. With the extension of the furlough scheme until Spring 2021, there is still no clear indication of how many businesses will fail and how many jobs will be lost in the new year.

Back in September, the Centre for Economics and Business Research predicted that house prices will fall by around 14% in 2021 as the Stamp Duty holiday comes to an end and demand drops off. It would appear that it is this fear that is driving mortgage lenders to adopt a more cautious approach to their underwriting and lending policy. We have already seen the Banks and Building Societies removing competitive fixed rate mortgages from their product range with little or no notice and some lenders removing their full product range to re-introduce it with higher rates and the need to provide larger deposits by increasing the LTV (loan to value).

Miniature house with house keys, housing market concept

What options do you have?

You could sell your property and achieve a high price now and purchase your next property at a potentially inflated price. If you have no plans to move house in the medium to longer term, then a 14% drop in value in 2021 may not have a huge impact on your longer term plans.

You could sell your property and achieve a high price now and then move in with family or into a rented property and wait for a house price crash and “Bag a bargain”. You may well bag a bargain, but what if a crash never comes and we continue to see steady growth? Then you will then have to start to climb back onto the property ladder, with higher property prices and the re-introduction of Stamp Duty from 1st April 2021, so you could find yourself financially bruised.

Don’t rush into it

Buying a property is likely to be the largest purchase you will ever make, so there is no need to rush into it. If you were buying a car or upgrading your mobile phone, then you would start by researching the options available to ensure you were getting the best deal. When you are buying a property you need to do the same. Your head and heart will have different opinions so you need to stop, think and then proceed with caution.

Many Banks and Building Societies have tools on their websites that can help you calculate the maximum amount you can borrow or work out your monthly mortgage payments. As mentioned earlier, the mortgage market and lending policy can change overnight so it is always wise to speak to an independent mortgage adviser to ensure that you are getting the best advice.

Will the sun still be shining on the property market in 2021? Who knows.

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As a mortgage is secured against your home it may be repossessed if you do not keep up the mortgage repayments.