As the UK, especially England, awaits confirmation of the next national lockdown there are concerns about the UK property market. The might of the UK government was able to back the earlier generous furlough scheme but funds are becoming tighter. A four week lockdown, which may or may not include Scotland, Wales and Northern Ireland, would see a switch to the job retention scheme. This scheme pays 67% of employee wages against 80% with the previous furlough scheme, which incidentally finishes today.
Mortgage arrears are racking up
The rumours are that non-essential businesses will close during the planned four week lockdown. We can only imagine the financial hardship this will bring to many business owners and employees in the weeks ahead. Many homeowners are already slipping behind on their mortgages – will the banks and the government be able to lend any more assistance?
If, as seems likely for many people, some homeowners are forced to sell their property to retain a degree of financial stability, what price will buyers pay?
Does everything come to those who wait?
There was a feeling that the UK property market was defying gravity in light of the initial lockdown and the various restrictions thereafter. In general, UK property prices were expected to show annual year-on-year rises despite the coronavirus pandemic. Whether the rumoured four week lockdown is extended or not, this must surely put huge pressure on UK property prices. Even if, as many optimists hope, there is a vaccine in the next six months, the financial mess the pandemic has left behind will take much longer to clean up.
It appears that everything does come to those who wait, especially when it comes to the UK property market.
Is it sensible to take a long-term position in UK property?
We will look back on the coronavirus pandemic in years to come with an array of emotions such as terror, disbelief and grief for those who passed away. If we take out emotion, the UK public and the UK property market have overcome huge challenges in the past. Some way or another, investment markets seem to find a way to take into account the challenges in front of them. It may take some time to recalibrate for example the stock market and the UK property market, but it will happen.
As a consequence, with UK property prices surely set for a period of volatility at best, and a significant reduction at worst, is it time for investors to sit on their hands?
Stepping into the unknown
It was difficult enough stepping into the unknown with the first national lockdown but the second comes at us from a significantly weaker financial position. UK government borrowings have ballooned, mortgage arrears have gone through the roof and many businesses are struggling to survive. Then we look at employees where a significant reduction in their take-home pay will impact retail spending. The knock-on effect to financial markets and the property sector could be unprecedented.
Conclusion
The medium to long-term picture for the UK, UK property and the worldwide economy is difficult to visualise at this moment in time. History shows that human nature is such that we will bounce back from these challenges and investors will return. If, as expected, the national lockdown is announced this evening we will no doubt see an array of new revised forecasts for the UK property market. It is difficult to see any scope for further increases in UK property prices in the short term – then again that’s what the experts said as we entered the first lockdown!
It may soon be time to start cherry picking the best assets, negotiating the best prices and playing hardball. Exactly when that time will come, that is anybody’s guess.