How Will Coronavirus Impact House Prices?
The Coronavirus (COVID-19) pandemic has taken the whole country by surprise.
Even a few weeks ago, it would have been hard to imagine that we’d almost be at a complete standstill.
For the home buying and selling industry, the shock has been particularly noticeable considering we had such a good start to the new decade.
Indeed, after the general election of 2019 and uncertainty surrounding Brexit, a refreshed sense of optimism was restored across the property market.
Everyone from the Royal Institute of Chartered Surveyors to leading mortgage lenders predicted a reasonably positive year.
Yet, in the blink of an eye, what economists call a ‘black swan’ event has led to talk of a global recession.
Will Coronavirus Cause a Property Market Crash?
If you’ve currently got your house on the market or are looking to sell, you’ll naturally be concerned about where things are heading.
Yet, whilst an event like Coronavirus is unprecedented in most of our lifetimes, there are plenty of reasons to remain hopeful and absolutely no need to panic sell.
First off, let’s look at some of the inevitable negative effects…
The Bad News
With so many businesses effectively shut down, not to mention the enormous pressures on the NHS and other essential public services, the economic shocks resulting from Coronavirus cannot be underestimated.
As the government injects money to keep the economy afloat and jobs in place, the main priority is to get through this turbulent period.
Unprecedented since wartime, the housing market can be best described as ‘paused’.
Bar keyworkers and those who are able to adequately socially distance themselves, the population is on lockdown and/or self-isolating.
Although a sizeable amount of people are working from home, many employers are ‘furloughing’ their workforce. This means that people will officially remain in employment but cannot actually work.
Needless to say, the same market fervour we saw at the start of 2020 will certainly fade over the next few months.
As estate agents ourselves, the safety of both our seller and buyer clients is paramount.
This translates to no face-to-face meetings, appointments and viewings for the foreseeable future. In other words, everything we do has to be entirely online.
The result is that transaction levels are likely to drop, as will prices to some degree.
The Good News
At the time of writing, most industry specialists agree that we’re unlikely to see a major house price crash.
There’s an understanding that there may well be a temporary downturn but prices will bounce back quickly.
Most people who have home sales going through (agreed before the Coronavirus outbreak) are not pulling out.
Although traders and investors will take a different view, the general market buys homes for the long term and are not concerned about a short-term blip.
Any current forecasts you’re coming across will be baseless.
None of the price indices have validity plus any transactions that do happen during the COVID-19 period will bear little relation to the market as a whole.
Is This Going to Be Like The Last Recession?
No, this is not going to be like the 2007/08 recession.
Back then, the banking system was on the verge of collapsing.
Although mortgage lenders are worried about the current situation, their balance sheets are healthy and they are well-capitalised to weather the storm.
The logistics of the house sale market are also a lot more adaptable to challenging circumstances like this.
These days, viewings / appointments can be done whilst on lockdown (see below), contracts can be signed online and there are more communication channels than ever before.
Interest Rates Hit New Lows
You’re probably aware that the Bank of England just dropped interest rates to a new historical low of 0.1%.
Alongside various other economic measures, this will undoubtedly help fuel house price growth once the Coronavirus crisis is over.
There is also discussion of banks and mortgage lenders lowering affordability tests – making homeownership more accessible to all.
The Economy and Housing Market Will Recover Fast
Without underestimating the seriousness of the situation, the country’s economy and housing market is in a much stronger position compared to the previous downturn.
However, at this stage, nobody knows when exactly the health crisis will ease.
There’s a chance that the economic slowdown could stretch out for longer than we expect.
Concerns also remain about how the country will avoid a second or even a third wave of COVID-19 and possible reinfections.
But, once this is all over, things should rebound reasonably quickly.
Really Need to Sell Your Home (Despite Coronavirus)?
First off, please do not panic. If you need to sell, you will.
To reiterate, the housing market is going through a unique period but things will turnaround, and a lot faster compared to the last recession.
Coronavirus and Your Mortgage
If you’re planning to buy a new property once you sell, there’s a good chance you’ll be able to access a very competitive mortgage rate.
If you already have a mortgage offer in place and are moving forward with the sale, it’s probably better to keep this in place to avoid a number of potential hassles.
However, you may find some hurdles as lenders ability to handle caseloads at the moment is severely restricted.
Halifax, for example, has said that they’ll only give mortgages to buyers who can place a minimum 40% deposit.
Nationwide, HSBC and Santander have stated they are continually reviewing market conditions and will still keep their high loan to value products in place. In other words, if you have less of a deposit, you should be ok.
Either way, you should keep pressing your solicitor. The last week or two has been a major change for business in the country.
Now that more banking staff are getting somewhat accustomed to working temporarily from home, things should speed up (albeit at a slower pace compared to normal).
Remember also that if you’re on a tracker mortgage rate, your interest payments will reach a record low.
If your house is still on the market, this hopefully means that you can ‘hold out’ for a while.
Facing Financial Difficulty?
If you’re worried about your job, and therefore your ability to pay your mortgage, speak with your employer directly.
The government has announced a series of measures to protect jobs as well as other assistance and grants to businesses in need.
If you’re waiting for grants to come through or still struggling, you can also claim a mortgage repayment holiday of up to 3 months.
To find out more about this, contact your mortgage lender. They will undertake an assessment of your situation and let you know if you’re eligible.
Remember that this does not mean that you can escape your mortgage obligations. You will have to pay the lender back and the amount of interest you owe will build up.
Therefore, if you can afford to keep up, we’d recommend doing so.
If you have personal loan or credit card debts that you’re struggling with (in addition to your mortgage), it’s worth speaking with your lenders to see how you could spread the repayments out to ease the load.
Selling on the Open Market
If your property is on the market but you’ve noticed the number of viewings drop, don’t be disheartened.
Provided your property is priced realistically, you will sell it!
Yes, you will find things slow down in the coming months, but this doesn’t mean that people are not interested in buying.
With more people at home now, search activity on the main property portals like Rightmove and Zoopla is going through the roof.
For this reason, make sure your estate agent has done a good job with the online marketing of your property for sale.
This means good quality photos, detailed floorplans and descriptions.
The better agents will also be rolling out modern tech such as virtual tours.
Remember, even though your estate agency may currently be closed, they should be working remotely. There’s no excuse for them to not be able to offer a decent service.
Should You Accept a Lower Offer for Your Property?
You may find buyers trying to negotiate down the price, attributing a ‘coronavirus-led recession’.
They’ll probably try to capitalise on the scary headlines (from clueless journalists).
Unless you really have to, our general advice is to reject any low-ball offers outright.
We would encourage you to read our content above and understand that this is merely a short-term market shakeup.
Use a Different Estate Agency
If you find your estate agent has simply lost interest or you’re having trouble getting hold of them, you may want to consider swapping.
Our own quick estate agency has seen a steady flow of enquiries for the properties we’re marketing.
Since the COVID-19 outbreak, however, we can not undertake any public-facing activity.
What we are doing is are Facebook Live sessions, Whatsapp video viewings as well as producing 360° tours for our clients.
Of course, this is no substitute for seeing a house ‘in the flesh’, our aim is to build lists of eager buyers to view your property once the coronacrisis is over.
List with an Auction House
For the foreseeable future, given the social distancing rules, traditional auction houses will struggle to run their live events.
We would imagine more will start to move their auctions online (alongside the ones that already exist).
This will mean that buyers can bid for properties, within a set timeframe (probably longer than what is normally the case).
A few things to take note of:
- Auction home sales are not as quick as you may think and can often take 3 or 4 months in total;
- Auction buyers will still want to see the property before they decide if they’re going to bid. These may be difficult for ill-prepared auctioneers to organise in the current environment;
- The fees you’ll pay will almost always be higher compared to using an estate agent. Solicitors will also charge extra as they need to produce specific auction legal packs;
- There may be conflicts over what the ‘reserve’ price should be. If it’s too high, you’re at risk of it not selling and facing abortive costs. As mentioned above, make sure you’re realistic;
- Auction houses are sometimes known to play the same games as estate agents and overprice properties to win instructions. Avoid this trickery by getting to grips with the ebbs and flows of the local property market yourself.
Renting Out Your Property
If you’re thinking about putting your house up for let until the Coronavirus crisis blows over, you may come up with some challenges.
It may be hard to conduct viewings in the next few months as social distancing rules come into play.
Even if you do find a tenant, you’ll have to grant a 6-month minimum tenancy.
At the end of this period, it may be hard to get them out and the property may be left in a messy condition. You’ll then have to spend money to bring the property back to a presentable state before selling.
The government has also stopped involuntary evictions, so the tenant can remain in the property for as long as they want. Either way, it’s currently a health risk for people to leave their homes (rented or not).
If you have a residential mortgage, you cannot simply let the property out without what’s called a ‘Consent to Let’.
There may also be tax issues when you come to eventually sell.
In our view, unless you’re doing it for the long term, going down this route is more hassle than it’s worth.
Take Out a Bridging Loan
If you’re in the unfortunate position of a being in broken house sale chain, using a bridging loan – essentially a short-term mortgage – could be an option worth exploring.
Whilst the application process is not as strict as taking out a normal home loan, most bridging lenders will be cautious as the Coronavirus situation plays out.
Before making the application, you’ll need to check that you have a sufficient amount of equity in the property and enough money to service the debt.
Broadly speaking, there are two types of bridging loans:
Open Bridging Loan
Open bridging loans are for a prolonged period and have no predefined end date.
Most of these loans last for between 3 and 12 months but the term can be extended.
Closed Bridging Loans
This type of bridging loan has a pre-defined end date and a cheaper interest rate.
A closed bridging loan can be useful if you have exchanged contracts already. The loan repayment date can be arranged in line with the completion date.
How Much Will You Have to Pay?
Brace yourself… Bridging can often be triple what you would pay for a standard mortgage.
The bridging lender will take a second charge security on your property. This is because the mortgage lender has the first charge. If you own the house without a mortgage, they will take the first charge.
Bridging Loan Risks
- With such high interest rates, ask yourself whether a bridging loan is really worth it. Could you borrow money from a cheaper source, for example?
- There will be extra admin/management fees to process the loan (known as ‘entry’, ‘exit’ or ‘arrangement’ fees);
- A lot of bridging lenders will ask you to pay extra legal fees;
- You could risk losing your home if you cannot keep up with the interest payments;
- Unlike the mortgage industry, bridging lenders are unregulated by the Financial Conduct Authority (FCA). If things go wrong, you’re generally not as well protected;
- With surveyors currently on lockdown, it may be difficult to go through the initial stages unless they’re willing to work on an online basis.
How Property Solvers Can Help…
We hope this post has at least given you some ideas as to how to navigate through this very strange period as a home seller.
The co-founders here at Property Solvers have been through a few market cycles and pride ourselves in offering impartial advice.
We’re in the process of building out extensive house valuation reports for our clients and would be more than happy to forward on a personalised copy via email. Simply drop us a quick message at firstname.lastname@example.org.
If you’re simply looking for an honest and up-front chat about selling your house during the COVID-19 crisis, we’re completely available.
Quick Cash House Sale (During the Coronavirus Crisis)
If you’re looking for a swift and hassle-free sale, this option may work well for you.
As it’s a private sale, you won’t have to worry about estate agency costs and we’ll also cover your legal fees.
During the Coronavirus crisis, we would need to undertake one socially-distanced viewing and an independent survey. You do not need to be present.
Everything can then be undertaken remotely and we’ll complete the sale within a month.
Estate Agency Sale (During the Coronavirus Crisis)
The main trade-off with the quick cash sale option is the acceptance of 75% of the market value as a purchase price.
For this reason, our fast estate agency service may be a better way forward.
At the current time, we do not expect to suggest lowering your prices. But we are suggesting holding off listing until the lockdown is lifted.
Property Solvers Valuation Process
We use ‘realistic pricing model’ which uses current data sourced from the Land Registry to get a broader idea of what properties are selling for in your area.
We will apply specific details on your properties comparative size, condition and any other unique characteristics.
For example, if your property has a larger garden or an extension then it’s fair to command a higher price.
Secure a House Sale in 28 Days
Using virtual tours and live videos, we’re confident of our ability to secure you a buyer in under than 28 days.
We’ll take high-quality photos (and won’t publish unless you are 100% happy), produce a floor plan and mount a high impact ‘for sale’ sign.
There will be no fees until you complete plus no tie-in contracts. There really is nothing to lose by giving us a try.
As well as Rightmove, Zoopla and Prime Location, we’ll also market your property on a range of other portals to get your property maximum exposure.
What’s more, our estate agency service also includes a 24/7 enquiry line and chat service. We’ll never miss a beat…