Coronavirus and the London Property Market

CORONAVIRUS & LONDON's PROPERTY MARKET

Published 24th March 2020

Whilst the coronavirus pandemic is a human crisis first and foremost, it would be amiss to not give our initial thoughts on the short and longer term implications for London’s property market. 

Now more than ever, clients need an honest assessment of the market.  Perrygate will continue to outline both the potential up and downside of any purchase and help our clients achieve the best possible terms. 

What was happening to the market before the pandemic? 

Confidence and activity were returning throughout January and February.  The general election result gave many the confidence to proceed with their purchase and the majority thought ongoing uncertainty surrounding Brexit negotiations was ‘priced in’. Competitive bidding and sealed bids were making a return for ‘best in class’ properties.

It’s safe to say, that’s no longer the case! 

And Now? 

The property market has come to a virtual stand still. Estate agents aren’t conducting viewings whilst lenders and surveyors are not carrying out valuations in person. 

We have some client purchases in the hands of solicitors which made it beyond the surveying and financing stages before lockdown. We are progressing these sales towards exchange of contracts with our clients in control of the process. 

One side effect of the lockdown is Airbnb properties flooding the regular rental market. This is causing a short-term decline in rental asking prices but whether you can carry out a viewing is another question entirely. 

Has COVID-19 already affected house prices? 

Due to the lockdown, the impact of COVID-19 is minimal – there are nowhere near enough transactions to make a valid assessment of the market. This will remain the case until we start seeing significant transactional data coming through. 

Property is an illiquid asset and house prices are not subject to the day to day swings of the financial markets. Once the market reopens, there will be a period of ‘price discovery’ as buyers and vendors try to establish what is a fair price. Banks will also reevaluate what is an acceptable level of risk.  We expect this to suppress transaction volumes for the first few months after lockdown.  

What will happen to house prices?

In short, nobody knows the extent of the economic damage COVID-19 will cause and the subsequent effect on the market. Will society only return to normal following a long wait for a vaccine or will things improve gradually with the introduction of anti-viral drugs and immunity tests? How much money will central banks inject into the economy? Will the government introduce a SDLT holiday to protect house prices? 

With that said, here is our personal take on London’s property market in 2020. 

     Potential Downside: 

  • higher unemployment levels / firms reducing salaries – this could lower yields which put downward pressure on prices 
  • an uncertain lending environment – will banks impose stricter affordability checks and be more conservative in their valuations? 
  • economic losses from the ongoing lockdown
  • future losses to the economy as the world recovers from the virus – the IMF and other respected bodies are predicting the worst economic downturn since The Great Depression. Even in a best case scenario, the economic impact will be significant and talk of a V-shaped recovery seems optimistic. 
  • potentially higher income tax rates as the government looks to address higher debt levels
  • higher death rates, divorce rates and personal debt which will all increase the number of motivated sellers

     Potential Upside:

  • historically low interest rates unlikely to increase in the short-term 
  • mortgage holidays alleviate immediate pressure on landlords and homeowners
  • the majority of homeowners in prime central London are not heavily leveraged or own their property outright so we expect this to limit the number of distressed sellers
  • in an uncertain lending environment, cash buyers or those looking to buy at a maximum 60% LTV will likely find they have more negotiation leverage than in previous years. 
  • overseas buyers can benefit from favourable exchange rates against the £.  Pound sterling is currently trading at $1.25 USD
If we weigh up all the above and assume asking prices will be at February 2020 levels when the market reopens, we see more downside than upside throughout the rest of the year. Even if there is limited available stock, we believe buyers will have the upper-hand. It will likely take the majority of vendors and selling agents a while to come round to this view.  

What should I bear in mind if I’m looking to buy in London? 

After the lockdown, we believe buyers should be looking to secure a discount to reflect the additional risk.

Now more than ever, any purchase should be made with a time horizon of at least 5 years. With the current uncertainty, it makes even less sense to be paying SDLT twice – especially if you are an overseas buyer looking to avoid the SDLT increase in April 2021. 

Interest rates are now at historic lows and accessing capital is cheaper than ever. Many will see a softer market as an opportunity to secure their dream home on a long fixed-rate mortgage. 

We will work our hardest to secure any property for the best price and buyers should be taking a long-term view of how their investment will perform throughout the 2020s, not 2020! Historically, central London property has always been one of the safest investment classes with strong capital appreciation. 

Now more than ever, we believe our 6 month retainer period gives clients time to assess the market and act accordingly.

There will certainly be excellent buying opportunities in 2020 and 2021 where buyers will have significant negotiation leverage. As ever, finding the right property and motivated vendors will be key. 

If you would like to discuss a future or ongoing property purchase in London, please get in touch with us today for a free consultation. 

Perrygate is a registered buying agent and not a financial advisor. Anyone considering purchasing UK property must undertake their own due diligence. The opinions expressed in this and other articles are the personal opinions of staff at Perrygate and do not constitute investment advice. The value of an investment may go up or down. Please see our Terms of Use  for more information