This week saw Andrew Bailey replace Mark Carney as Governor of the Bank of England as we enter a new dawn for the UK central bank. There is already intense speculation that his first act will be to push for yet another reduction in UK base rates from the historic low of 0.25%. The idea is simple, make borrowing very cheap and therefore create a wave of money to support the economy. Will this work for the UK property sector?
Outlook for UK property sector
It is inevitable that we will see a stalling of the recent recovery in UK property prices but to what extent? Many believe that the pent-up demand on the sidelines will offer a degree of support as will the current historically low UK base rate of 0.25%. Any further reduction in UK base rates would likely be part of a concerted effort by the G7 to support both local economies and the worldwide economy. Whether any reductions would be passed on in the shape of further mortgage rate falls remains to be seen.
Buyers and sellers hit equally
Interestingly, a number of property experts have stepped forward to suggest that ongoing concerns regarding the coronavirus will hit buyers and sellers equally. We already know that the UK property market was struggling with a lack of supply and increased demand. The situation in the buy to let sector is even more acute with around 500,000 properties taken out of the private rental market due to government tax changes. So, while there will be an inevitable impact on property prices in the short term, the medium to long term prospects still remain fairly encouraging.
What if the coronavirus became a long-term issue?
It does look as though many investors are pinning hopes on the fact the coronavirus will begin to fade in the next 3 to 4 months. There is already speculation of a vaccine but the UK government is currently under intense pressure to address mass gatherings, school closures and other issues. Boris Johnson and his government are effectively in a no-win situation, they’ve tried to explain their scientific approach which also takes in behavioural therapy. This has been dismissed by many people as calls to close schools and public facilities grow louder. But surely this should be a science-based defence?
Concern and confusion
There is concern and confusion with regards to “normal life”, death rates and the outlook for the UK economy in the short to medium term. While there have been rallying cries from communities up and down the UK this may not be enough to fight off the potential economic impact. There is still a strong backbone of demand for UK property and this will likely increase even if we have seen housing stock taken off the market. Looking from the outside in, there are obviously issues for the UK government and worldwide governments to address. That said it is highly likely that “bottom fishers” will emerge if prices did fall significantly.
Summary
We all know that it is darkest before the dawn but to suggest the light is just round the corner would be misleading at this current time. It is unlikely we will see a collapse in UK property prices as borrowing rates are too low and demand has been outstripping supply for some time. There will be some concern and confusion, perhaps a softening of property prices but once the economy to starts to recover don’t expect a gradual recovery. The recovery in prices could be fairly extreme!