The UK – like many other countries around the world – finds itself in an unprecedented situation. The outbreak of coronavirus, and the new illness Covid-19 that results from it, has led to the almost total shutdown of normal life across the nation.
Members of the public have been told they must stay at home and can only go outside for food, health reasons, to get to work (if they can’t work from home) and to exercise once a day.
It goes without saying that these measures – the most extreme ever seen in peacetime – are having a massive impact not only on individuals, but on businesses and the entire economy.
If you’re a real estate investor, you’re probably wondering what the coronavirus pandemic means for the property market. Here are some of the key trends to keep an eye on:
There’s no doubt this health crisis will have an impact on property demand and transaction activity. The key question is: how big will these effects be, and how long will they last?
According to property experts Savills, the pandemic to have a more limited and shorter-lived impact on house prices than either the early-1990s recession or the Global Financial Crisis.
Savills suggests that prices may drop slightly over the short-term and the company also expects a fairly stable five year outlook. The company predicts that UK property prices should remain similar to their November 2019 forecasts however, distribution of growth year to year may be slightly different.
Echoing the data from Savills, industry experts have pointed out that, while the coronavirus outbreak will affect transactions and cause a slowdown, buying and selling won’t stop altogether. One possible outcome is that prices will dip in the short term, but growth will get back on track once the spread of the virus begins to slow and the UK can return to something like normal life.
Stephen Maunder of Which? told BuyAssociation: “A rise in the number of people self-isolating could mean fewer properties becoming available, and thus fewer buyers viewing and bidding on homes. In short, more people will be staying put for longer.
“Fewer transactions could see house price growth slow right down, but it’s highly unlikely we’ll see any major crash in prices, and – as with Brexit – the market will eventually pick up pace again after a period of uncertainty.”
Perhaps the most important thing to remember is that the British housing market has demonstrated its resilience many times before. It has been through extremely difficult periods – like the 2008 financial crisis – and recovered.
The Bank of England didn’t waste much time in responding to the threat of Covid-19. On March 11th, it announced an emergency cut in interest rates to 0.25%, and just over a week later took the historic move of slashing the benchmark rate again to just 0.1% – an all-time low.
Several other central banks around the world have taken similar actions to keep credit flowing into the financial system and to protect the economy from the worst effects of the pandemic.
The immediate effect of these cuts, as far as the property market is concerned, is lower rates on tracker mortgages, as well as the potential for people looking for new mortgages or those remortgaging to find cheaper deals.
Investors can take encouragement from the fact that these repercussions could incentivise buyers and generally keep the market moving, which will fuel price increases and drive capital growth.
Overseas buyers looking at opportunities in UK property get more for their money when the pound loses value – something that has become a fairly common occurrence in recent times.
Sterling has been at a historically low level since the Brexit vote in June 2016, and has suffered further declines in value amid the ongoing coronavirus pandemic.
The Financial Times reported that the pound has slumped to its lowest level on record against the currencies of the UK’s major trading partners.
Roger Hallam, chief investment officer for currencies at JPMorgan Asset Management, said: “The UK has a twin deficit and a history of high inflation following times of stress. The response in currency markets seems reasonable to me.”
If sterling struggles to regain ground against other major international currencies, it’s possible the property market could soon witness an influx of foreign investment as overseas buyers look to take advantage of favourable exchange rates and low prices.
More stable than stocks
It’s clear there will be instability in the property market for some time, but for investors weighing up the various assets available to them at the moment, real estate is likely to be viewed as a steadier and more reliable option than stocks and shares.
Recent trends have highlighted how the stock market feels the effects of short-term volatility at times like these. London’s FTSE 100 index plummeted by more than 32% between February 21st and March 23rd.
Many investors view UK property as a safe haven when other assets prove too risky and unpredictable.
While it’s clear that transaction activity will take a hit while normal life is put on hold, those who are invested in UK property or are ready to make an acquisition as soon as things get back to normal can expect to benefit from the sector’s underlying strength and reliability.
If you would like to speak to Experience Invest about property investment opportunities, you can contact us today.