When HMRC released residential property transaction numbers today it was no surprise to see a huge drop. These cover the period for April 2020 with many experts predicting that figures for May 2020 will be even worse. That said, the UK government recently released the UK property market from its paralysis and there are encouraging signs that pent-up demand is building.
Transaction number statistics
Before we take a look at the short to medium term outlook for the UK property market, it is worth taking a look at the basic figures announced today: –
• Residential transactions of at least £40,000 for April 2020 fell by 53.4% compared to April 2019 and 46.1% compared to March 2020
• Non-residential transactions fell by 45.2% when comparing April 2020 with figures from April 2019 although there was a reduced fall of 22% compared to March 2020
When you consider the huge changes in the UK property market of late this is no surprise. Don’t forget, this is a period during which: –
• Around 30% of mortgage brokers were furloughed
• Social distancing effectively froze the UK property market
• On-site valuations were longer possible
Even though some mortgage lenders were still operating using desktop valuations there is no doubt that liquidity was severely impacted as a consequence of the above measures. It is inconceivable to suggest that figures for May will show any sign of improvement because while the lockdown has been partially lifted, it will take a long time for the wheels of commerce to start moving again. So, we have written off April and now we should look towards writing off May but what about June?
Signs of pent-up demand
A number of mortgage brokers are already reporting signs of pent-up demand amongst property investors. At this point it is worth remembering that UK base rates recently fell to 0.1% and the Bank of England is seriously considering a move into negative territory. This would effectively make finance even cheaper and discourage those with liquidity from playing safe with deposit accounts. So, how should we expect the UK property market to progress from here on in?
• Further government assistance
It will be interesting to see whether the UK government repeals any recent property tax increases or introduces any further financial assistance for first-time buyers. They will probably wait until the dust has settled to see how the market reacts and then look towards further confidence boosting incentives.
• Stubborn sellers
Despite doom and gloom talk of a 30% reduction in UK property prices, the early signs are that pre-lockdown sellers are still seeking the prices that they had agreed with pre-lockdown buyers. Whether this is feasible in the current environment remains to be seen but there is definitely a reluctance for buyers to “give away their properties”.
• Bargain seekers
At the same time, there will be property owners/private landlords who are struggling to make ends meet. Therefore, it is inevitable that we will see a number of bargain seekers hunting for distressed sellers in the weeks and months ahead. Whether there will be significant liquidity in this area of the market to fulfil demand remains to be seen.
Confidence is slowly returning
In many ways the UK is currently in the midst of the “perfect storm” with the ongoing impact of the coronavirus pandemic as well as uncertainty surrounding Brexit. Many will argue that property prices were already depressed ahead of the Brexit negotiations while others will point towards the subdued economic outlook. The reality is that demand for UK property will remain relatively strong in the medium to long term. We may see some bumps in the road in the short term, Brexit disappointments and a potential second wave pandemic but you could argue these worst-case scenarios are already factored into property prices. So, will those long-term property buyers who have confidence in the UK property market have the courage of their convictions?