House prices: why a property market crash won’t happen in 2020

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House prices: why a property market crash won’t happen in 2020

The grim prognoses of a UK house price crash are now unlikely to materialise, at least not this year. Find out why – and what this means if you’re buying a house this year

UK house prices are continuing to rise at a steady pace, defying all industry forecasts. The latest Zoopla house price index is in, and the data points firmly to stable housing market conditions for the rest of 2020 – and likely into the first quarter of 2021. Although the situation around house prices is no longer referred to in terms of a market boom, the much-predicted property market crash has failed to materialise. What are the real reasons behind this expert-defying trend?

First-time buyers are suffering, but not equally across the UK

One of the biggest worries around the impact of Covid-19 on the Uk housing market has focused on the dwindling supply of mortgages for first-time buyers, particularly high LTV (loan-to-value ratio) mortgages. However, the extent to which the newly imposed restrictions of low-deposit mortgages is affecting first-time buyers differs significantly between different regions.

Reduced access to mortgages with 90 LTV and higher has hit regional property markets with average or below-average house prices the hardest. As the Zoopla report explains, ‘loan to income limits do not exclude a high proportion of would-be buyers’ in regional markets, and, as a result, people buying their first homes in areas outside of south-east England tend to be more reliant on lower-deposit mortgages.

In London and the South East, on the other hand, first-time buyers tended to have larger deposits even before the pandemic hit, with high-LTV mortgages being mostly accessible to people on high salaries, and, as a result, the bigger deposits play a more important role in securing first properties there.

It is true that as the number of first-time buyers declines in the regions, we will start to see a shift towards second-steppers, but, as Zoopla point out, this shift will take a good while – well into 2021 – to become obvious.

Regional house price variations: the North is booming

First-time buyer trouble notwithstanding, the north of England is leading the trend in rising house prices and increased demand, perhaps suggesting that second-steppers have been quick to act in high demand areas in the north-west, Yorkshire, and Wales – all areas that have seen house price rises of 3.3 per cent, in marked contrast with just 1.7 per cent in the south east.

In Nottingham and Manchester house prices have shot up even more substantially – by 4.7 and 4.2 per cent respectively. It will take some time to be able to tell whether existing home owners are propping up the demand in these areas, or whether there’s still a healthy mix between first-time buyers and second-steppers, but it’s not coincidental that areas of the north that have had lots of urban regeneration and a growth in the jobs market are reaping the rewards with a buoyant housing market.

House prices 2021: what will happen?

The report is clear in dismissing any chance of a property market crash in 2020, but is careful to point out that the housing market is ‘not immune’ to a sustained economic decline; it’s just that, because pent-up demand from the Covid-19 spring lockdown is continuing to prop up house sales, any downturn would take many months to manifest itself. Zoopla explain:

‘As well as the economic outlook and market sentiment, we need to keep a watchful eye on the relatively rapid increase in new supply and the pricing of this new stock. If demand were to weaken suddenly then there is a risk of an overhang of unsold stock and slowing in sale that would most likely require price reductions to support sales. This process can take up to 6 months to work through the system.’

Source: Real Homes

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