Residential Property Market Update – What will Coronavirus do to it?
The RICS reports monthly on the residential property market, gauging the sentiment of agents across the UK, looking at trends in vendor and buyer enquiries, the pipeline of stock and deals agreed in the month. The March 2020 report is now out and, not surprisingly makes interesting reading.
If we go back to previous months, the December General Election had steadied the market, with new instructions coming forward (at last) but with demand still not being met. Sales volumes had started to rise and most things in the garden were rosy.
Roll on to March and we have been hit by the Coronavirus which has brought the country as a whole to a virtual halt. Not in living memory has the country seen anything like we are currently experiencing.
Towards the end of March, the Government required everyone to stay at home, unless they are employed as a key worked or in an essential job. From an estate agency point of view, this has limited what agents can do. Whilst many agents can operate from home, using technology they, firstly, lack the support of their office teams but, secondly, there are practical issues such as dealing with viewings and meeting clients.
Government guidance advises against house completions, and others involved in the process, such as removal companies are not operating. Most solicitors are working in some form, but understandably struggle with maters such as money laundering and transfers of money.
Near terms expectations are, of course, deeply negative as a result of the current lockdown, with the weakest figures since the series began in 1988. Many contributors expect sales to be down at the twelve month horizon.
It is also unsurprising that new instructions dropped back shortly. Besides the practical issue of meetings, undertaking floorplans, EPCs, etc. there is an unprecedented uncertainty in the economy. Many people have been laid off (furloughed) or made redundant. With certain key exceptions, such as supermarkets, the economy is virtually non-functioning.
House prices had been on an upward trajectory prior to March, but surveyors now feel that this cannot continue. Having said that, the medium/long term view is more resilient. Prior to Coronavirus, demand for housing was not being met, leading to robust prices in most areas across the UK, with perhaps the exception of the South East which had begun to cool.
From a valuer’s perspective, we cannot inspect properties at the present time. There are options of “desktop” or “drive-by” valuations, but these are used sparingly and do not really suit secured lending requirements. These are naturally limited in their scope and come with caveats about the information contained within them.
Even if we can undertake valuations, the transactional evidence is limited. Frankly there is none. Sales agreed and completed before the end of March have limited relevance to where we are in April. Any valuer, or commentator, who tells you that the market will fall 10% (or insert own figure) is wrong. Nobody knows. A good valuer will have an eye to what is happening in their local market, but until the country opens up again and the economy starts operating properly, they will be reporting “Market Uncertainty”. This phrase has to be used sparingly, but will no doubt be more common over the next year or so.
One of the problems with moving the market forward will be mortgage lending. Lenders will no doubt be wary of mortgages for the next few months and it is likely that the loan to value (LTV) figure will be lower than in the past. Lending at 95% LTV against a property with an uncertain value is not going to be appealing to lenders.
In the lettings market, tenant demand was reasonably stable in the last quarter, but landlord instructions fell once again in March. There is emergency legislation which protects tenants, so it is likely that many more landlords will exit the market in the coming year. This will more than likely see rents continue to rise, although there will be a check and balance here in that tenants may have less money to spend on rent. In lower value areas there may well be tenants struggling for some time to come.
It really is “watch this space” for now and we shall endeavour to keep you updated as things change. We really do not know how long this will be.
Graham Bowcock MRICS
9th April 2020