Despite house prices reaching a new record high of £227,826 this year, many experts believe that the UK housing market is as doomed as the dodo. They see the 2020 miniboom as the calm before an inexorable storm and there’s absolutely nothing you, me, or anyone else can do about it.
One can understand the doomsters’ argument. They claim this year’s growth was caused by unsustainable measures like the stamp duty holiday, the mortgage payment holiday, plus the pent up demand after lockdown; therefore once these temporary perks expire the market will crash.
Nothing, however, concerns the prophets of pestilence more than the impending expiration of furlough. When the chancellor announced his initial scheme in spring this year, the expiry date of 31 October was circled on the pessimists’ calendars. Now furlough has been extended until spring 2021, the new date of 31 March has been earmarked for the property apocalypse. So should we be afraid?
The reliance on furlough
The extension of furlough was undoubtedly good news for the property market so there’s bound to be some uncertainty surrounding what happens thereafter. Job losses seem inevitable when Rishi’s generosity finally runs dry.
The problem is that rising unemployment is the bête noire of the housing market. It means fewer people can afford mortgages and more people have to sell their homes at reduced rates. House prices dropped by a whopping 20% when unemployment reached 10% and 8% respectively in 1993 and 2008 so a repeat would be devastating.
Furlough also offers comfort for tenants. It helps them to pay rent and this obviously sustains landlords too. However, this time the government has decided against extending the eviction ban. Some protections remain in place – landlords must give six months’ notice before evicting tenants – but Labour believes more is required. Tenants will therefore feel particularly vulnerable when furlough ends.
A perfect storm?
Although our gut tells us that eviction relief may be extended, there’s still a potential ‘cliff-edge’ where pillars propping up the property market could be pushed away simultaneously on March 31st. Mortgage payment holidays will also be over by spring; this could add to a potential surge in repossessions.
The other significant factor is that the chancellor’s stamp duty holiday, which saves homebuyers up to £15,000, is also set to expire simultaneously. This could create a triple-whammy effect. Consequently, there have been calls to extend the stamp duty holiday from some quarters – especially as the November lockdown could scupper deals currently in the pipeline.
Although the market has been buoyant in 2020, Rightmove has noted that prices dipped slightly in October after strong growth over the summer. This is most likely due to sellers’ eagerness to push deals through so they can make stamp duty savings on their onward purchase.
However, Halifax’s managing director Russell Galley believes we should be realistic about the long term. He has warned it’s “very unlikely” that the housing market will remain “immune to the economic impact of the pandemic” forever, and that there will be “significant downward pressure on house prices” in the months ahead.
The Centre For Economics And Business Research (CEBR) supports this gloomy prediction. It claimed prices would fall by almost 14% next year before furlough was extended. According to the CEBR’s Kay Neufeld, the extension simply “moves the cliff edge” without actually boosting the market. This is because banks have already started withdrawing low deposit lending and cutting first-time buyers out of the market.
Reasons to be cheerful
Fortunately, however, not everyone has been drinking the doom-aid. Aneisha Beveridge of Hamptons, for example, has pointed out that recent growth has been driven by wealthy upsizers whose finances won’t be affected by the current lockdown. What’s more, although new buyer registrations have dropped in recent months, they still remain higher than in 2019.
Hampton’s forecasts aren’t disastrous either. They expect house prices to rise by 2% overall in 2020 and then to ‘stagnate’ next year. Stagnation isn’t exactly thrilling news but it could be a lot worse considering the broader Covid-19 carnage.
Meanwhile, the Office for Budget Responsibility (OBR) has published an ‘upside scenario’ that envisages a fall in prices of just 2% in 2020 followed by a rapid recovery to pre-pandemic levels. Low interest rates should also help the market.
Look on the bright side
There’s no doubt that 2020 has been a pleasant surprise. Yes the end of furlough and the stamp duty holiday will add to growing uncertainty, and yes there’s growing evidence that landlords are offloading properties before a post-Covid-19 recession, but there’s no need to panic yet.
With several coronavirus vaccines on the way, it’s possible that the broader economy might recover quite quickly from the pandemic. If this occurs then unemployment will be minimised and the property market will benefit. What’s more, there’s every chance that Brexit might finally be settled before furlough ends. And if it isn’t then it could well be Boris Johnson, rather than single property owners, who are looking for a new job.