Global property consultancy, Knight Frank, has updated its short-term forecast for the UK’s property market and predicts a fall in house sales of 38pc for the full year.
The fall will be due to the measures imposed to prevent the spread of Covid-19 but will be less severe than the 45pc drop in sales in the year following the financial crisis, mainly because the housing market was healthy and vigorous when the virus entered the UK.
The prediction of a total of 734,000 transactions this year is based on the assumption that the current lockdown will continue through April and May followed by a gradual easing of restrictions during June.
Furthermore, the company expects prices in prime central London to remain unchanged in the wake of a 25pc correction since 2014, while mainstream UK house prices are forecast to fall by 3pc this year.
The market is likely to burst into life once more as restrictions are lifted due to the pent-up desire of consumers to move and complete transactions currently blocked by the postponement advised by the government. The consultancy anticipates prices recovering promptly in 2021, predicting growth of 8pc in prime central London prices.
Liam Bailey, Global Head of Research at Knight Frank, commented that the underlying economic forecast chosen assumes a contraction of GDP of 4pc this year and growth of 4.5pc next year. The actual outcome, he said, would be determined by the length of the lockdown.
Mr Bailey added that the housing market performed robustly in January and February, resulting in a noticeable upturn in sales and price growth across the UK, with even the prime central London market witnessing a reversal of the five-year-long price decline.
Low interest rates
Knight Frank has confidence in the resilience of the property market because of government intervention and markedly lower projections of unemployment in comparison to 2009. Oxford Economics forecasts that unemployment could reach 5.5pc by the end of April and a maximum of 4.17pc this year.
By the same token, the Government’s decision to introduce the Employment Retention furlough scheme, the £350bn package of measures to help the UK economy and the reduction in interest rates to 0.1pc, could help ensure the property market and UK economy bounce back quickly.
Interest rates are expected to remain below 1pc until the first quarter of 2023 and not exceed 1.5pc until the end of 2024. This should mean cheaper mortgage options when lenders feel able to present a wider range of products once the social distancing measures end.
Although the revival in housing activity is expected to continue with volumes in 2021 forecast to be 18pc above the level seen in 2019, Mr Bailey warned that the growth in sales next year will not compensate fully for the losses this year.
This means that fewer than half of the 526,000 sales anticipated to be lost due to lockdown this year will be carried over into 2021.
Accordingly, there will have to be significant incentives to improve market liquidity, such as a reduction in stamp duty, if the Government is to see the market recover fully and all the ‘lost’ sales carried forward, Mr Bailey added.
Market frozen until end of August
Related research carried out by Trussle found that buyers and sellers anticipate the property market remaining frozen for around five months. The survey found that 49pc of buyers had ceased looking actively for a property before the social distancing measures were introduced.
Although only a fifth of buyers pulled their homes off the market before lockdown measures were strengthened, many have since decided to do so as the Government advised consumers to postpone sales until such time as the coronavirus has reached peak levels in the UK.
Buyers and sellers on average think it unlikely that market activity will resume before the end of August. In the meantime, home owners are looking to take advantage of more favourable interest rates by shopping around for remortgage options. 16pc of owners are said to be considering remortgaging in order to reduce mortgage payments.
Trussle suggests that this could be a significant move for canny property owners who want to avoid reverting to their lender’s Standard Variable Rate (SVR) and could save them around £340 per month.