The coronavirus pandemic will affect all aspects of the UK housing market. In this note we consider the impact it is likely to have on residential transactions, values, rents, and development.
The scenarios set out in this note reflect a set of economic forecasts produced in a period of significant uncertainty. As a result, they are liable to change as circumstances unfold.
In general, we can expect the pandemic to affect the housing market in a number of ways:
General uncertainty will weigh on consumer sentiment;
Restrictions on people’s ability to go about their day-to-day business will impede normal estate agency, mortgage and conveyancing processes;
Stock market falls will make people feel less secure about their personal financial situation; and
A negative impact on earnings, employment and wealth generation.
The UK Government has responded with extensive support for the economy and businesses, including liquidity injections, grants and low-cost loans for the most exposed sectors of the economy and encouraging lenders to take a benevolent approach to those struggling with mortgage payments. This should help reduce some of the pandemic’s impact, enable a swift economic recovery and limit the number of households forced to sell.
The central scenario for most economic forecasters is a sharp, short economic contraction in 2020, particularly in Q2, followed by a rebound in late 2020/early 2021. For example, as at 19th March Oxford Economics was predicting UK GDP will fall -2.5% in 2020 Q2 and rebound +1.8% in Q4.
Current forecasts now account for the base rate cut to 0.1% announced by the Bank of England earlier this month. Oxford Economics predicts rates will remain at this level until Q3 2021 and only reach 1.5% by the end of 2024.
Unemployment is likely to rise slightly in the short term, returning to pre-pandemic levels by Q3 2021.
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