As the coronavirus outbreak continues to impact the UK economy and consequently the property market, it’s worth looking back at any lessons that can be learned from the 2008 financial crisis and its repercussions.
The coronavirus outbreak is currently impacting the British economy in a way that, for many, will bring to mind the 2008 financial crisis.
However, there are some significant differences between these two events – most notably that the economic meltdown of 2008 was triggered by systemic problems in mortgage lending and banking practices, whereas the current situation is very much a health crisis that has had wide-ranging effects.
Despite these distinctions, investors and stakeholders in UK property might now be looking back at the events of 2008 and how they shaped the market, in an effort to predict what the future holds.
The off-plan boom
One of the most interesting effects of the 2008 financial crisis was an increase in off-plan property investment, as a growing number of buyers showed an interest in acquiring real estate assets while they were still under construction, or before development work had even started.
A key factor in this trend was the tight lending practices introduced by financial institutions in the wake of the crisis, which had an impact on construction and development firms.
The shortfall in lending led to an increase in investor-funded developments, with individual or institutional investors stepping in to provide the capital that was lacking from banks, allowing new real estate projects to go ahead.
There were some powerful incentives for investors to commit to off-plan developments, such as the discounts typically available to buyers and the opportunities to start seeing capital growth before the property is even on the market.
You can find out more about this subject by reading the Experience Invest guide to off-plan property investment.
There was an inevitable and undeniable impact on house prices as a result of the 2008 financial crisis.
According to Land Registry data, the average UK property price dropped from £189,193 in December 2007 to £154,452 in March 2009, a fall of 18%.
However, prices returned to a trend of consistent growth fairly quickly, rising from the lows of March 2009 to £173,417 in August 2010, and were back to pre-crisis levels by mid-2014.
The Land Registry figures showed the average UK house price was £231,185 in January 2020, highlighting the long-term growth property owners have seen since December 2007, despite the impact of the financial crisis.
As far as the current coronavirus situation is concerned, there will clearly be an impact on the property market in the short term, largely because there will be a significant slowdown in transaction activity. With the outbreak still unfolding, it’s impossible to say with certainty what repercussions it will have.
However, past events like the 2008 financial crisis and the uncertainty caused by Brexit have demonstrated the robustness and resilience of British property. Investors can therefore feel confident that, whatever happens in the short term, the market has the underlying strength required to recover.
What’s more, the experts at Savills currently expect the pandemic will have a short-term impact on the housing market however, the company forecast house prices will continue to rise over the medium-to long-term, albeit with a slightly different trajectory that anticipated.
“We expect the five-year outlook for prices to remain similar to our November 2019 forecasts but with a different distribution of growth year to year,” Savills, March 2020.
If you would like to discuss UK property investment opportunities, contact Experience Invest.