Sales continue despite lockdown

Thu, May 28, 2020

Despite full lockdown across the housing market in April, more than 46,000 residential properties completed during the month on a seasonally adjusted basis.

While this is around half the level recorded a year earlier, it is still higher than expected, suggesting more deals went through to completion than were anticipated. With restrictions eased on 13th May we expect transaction levels to build over the summer months as transactions already in the conveyancing process combine with newly agreed sales.

Early results from the Dataloft Homemover Survey (due to be published next week), show a strong appetite from prospective buyers to move as soon as they find the right home or sell their current home.

National Summary

The UK economy contracted by 2% in the three months to March, following zero growth in the final quarter of 2019 (ONS). Bank of England announced interest rates will remain at 0.1%. Their scenario based on lockdown relaxing in June expects the economy to contract by 14% in 2020, rebounding in 2021 to 15%, back to pre Covid-19 levels by mid-2021. The latest HM Treasury consensus forecasts for GDP growth are -5.8% for 2020 and 5% for 2021.

Bank of England expect average weekly earnings to shrink by 2% and unemployment is on track to rise from 4% to 9+% this year. Inflation is expected to fall to zero at the start of next year and remain below the 2% target for the next 2 years.

GFK consumer confidence and RICS survey reported huge drops in consumer confidence. With the government announcing the conditional 3-step lockdown exit strategy, the furlough scheme extended and estate agents, conveyancing and removal companies given the green light, we hope to see sentiment slowly pick up.

The UK went into lockdown on the 23rd March, and according to ONS the average price of a property sold in the UK was £231,855, 2.1% higher than a year ago. This represents a strong pre-Covid market.

It will be difficult to gauge the impact of Covid-19 on house prices in the short term due to the near stall of transactions. The Bank of England scenario expects a 16% drop in house prices. 

According to the RICS survey, agents think prices will take 11 months to rebound to pre-Covid levels. The impact on prices will become clearer in time.

Seasonally adjusted it is estimated 99,440 sales took place in March. This is 0.3% higher than a year ago, and reflects the market gaining strength in the period before Covid-19. However, these figures could be subject to revision when the data is updated.

With restrictions on moving into new homes lifted we hope to see completion of some sales agreed before lockdown. According to the RICS survey, agents anticipate 6-9 months to return to pre-lockdown transaction levels.

373,000 sales were placed on hold at the beginning of lockdown (Zoopla), making assumptions for fall through and newly agreed sales during and after lockdown lifts, Dataloft estimate 880,000 sales this year, 25% lower than 2019.

Evidence from the mortgage market started to show a decline in housing market activity, mortgage approvals were at their lowest level since March 2013 and saw a -9.5% annual decrease and a -23.8% monthly decrease. Mortgage borrowing saw a 2.9% annual increase and a monthly decline of -2.5%, often lagging approvals.

There has been no mass exodus of properties from the market following Covid-19 lockdown. Rightmove report that available stock for sale is only down 2.6% since lockdown. This tallies with the recent Dataloft survey where 81% of agents reported the majority of vendors were keeping their properties on the market.

The residential market reopened on 13th May in England and the number of visits to Rightmove showed a release of pent up demand. Rightmove had 5.2 million visits on 13th May, up 4% on last year.

Average rental values across the UK rose by 1.5% in the year to April (IPHRP). However, RICS Residential Survey reports Coronavirus having a negative impact on near term rental growth, with rents stagnating over the next 12 months. Fortunately, the 5 year forecast remains positive with an average annual growth of 2.5%.

From 1st April 2020 all rented properties must hold a minimum EPC rating of E. Landlords of properties below this rating with existing tenants are obliged to carry out works worth up to £3,500 to improve their energy efficiency. If an upgrade to EPC E cannot be achieved within this limit landlords are required to register for an ‘all improvements made’ exemption.

Development/new build
Just under 145,000 new private homes were completed in 2019, the highest annual total since 2007, according to data released by the government. Completions were up 7.6% year on year. In comparison, the number of private new homes started fell 10% to 124,250, its lowest total since 2015. Construction has been given the green light to continue, however, Covid-19 may impact the ability of planning authorities to reach housing targets.

As yet Covid-19 has had little impact on the number of the planning pipeline according to Barbour ABI and planning decisions are still being determined. Under the Coronavirus Act 2020 the government has made a temporary amendment to the law to allow planning meetings to be held via video link until 31st May 2021.

There have been rumours that Help to Buy could be extended in an attempt to kickstart the housebuilding industry following lockdown.

Prime markets
Ahead of Covid-19 London retained its second place behind New York in the latest edition of the Global Financial Centres Index. With the exception of San Francisco (ranked 8th), nine of the top 10 cities saw their rating score fall. The ranking is an aggregate of indices from five key areas: business environment, financial sector development, infrastructure factors, human capital and reputation and general factors.

From April 2021 non-UK residents will face an additional 2% Stamp Duty Land Tax levy on residential property purchases in England and Northern Ireland.