Mortgage lenders are slowly reopening their doors to new applications and estate agents report that buyer interest has surged following the relaxation of lockdown rules two weeks ago.
Property listing site Rightmove said it had its ‘busiest ever day’ on Wednesday, surpassing six million visits for the first time and up 18 per cent on the same day in May last year.
According to the site, the number of sales being agreed by agents is slowly starting to pick up but they warn it will take time for things to recover meaningfully. And other property industry insiders say that, while the recent flurry of activity is promising, the housing market is struggling to emerge from its period of stasis.
Estate agents report that buyer interest has surged following the relaxation of lockdown rules
Homeowners were told by Government not to move house and surveyors were unable to conduct physical property inspections and valuations due to the social lockdown guidance imposed on 23 March.
It triggered an almost complete closure of the property market overnight. Even where moves could be delayed, sales stalled or collapsed as lenders wereunable to assess risk for new mortgage applications.
Particularly for more expensive homes, new build and specialist buy-to-let properties, the majority of lenders refused to accept automated valuations made using a combination of housing market data and checked by a local surveyor.
On 12 May Government confirmed that surveyors and estate agents could go back to work and homeowners could move house again so long as strict social distancing measures are followed.
HSBC began confirming valuation bookings within hours of the Government safety guidance on how to conduct physical property inspections emerging.
Nationwide told mortgage brokers a day later that it planned to contact applicants to arrange their mortgage valuation by 29 May and hoped to have cleared its backlog by 12 June.
Skipton Building Society, Halifax and Santander began to rebook valuations on paused applications the same week, and major valuations firms L&G Surveying Services and Connells Survey & Valuation also confirmed plans to restart physical valuations imminently.
Consequently, over the past fortnight many lenders have relaxed criteria on their mortgage deals with several reinstating loans to those with a 10 per cent deposit or equity, which were shelved when the crisis hit.
Virgin Money, Clydesdale Bank and the Co-operative Bank have all raised their maximum loan-to-values to 90 per cent and Coventry Building Society confirmed it will recommence offering mortgages for those with a 15 per cent deposit or equity to put in.
Yorkshire Building Society increased the maximum property value for residential lending from £1million to £2million on residential purchase mortgages.
Halifax reported that mortgage application calls were up more than a third in the week following the Government’s announcement.
Meanwhile lenders that suspended all new lending in March, are now open again for new business. Specialist buy-to-let lenders Bluestone Mortgages, Fleet Mortgages and Foundation Homeloans have all returned to lending in the past two weeks.
These moves all point in the right direction for a recovery in the housing market and look set to enable home moves to get going again in the near future.
But transaction numbers from HMRC have fallen off a cliff. There were just 46,440 residential property transactions in April 2020 with the provisional seasonally adjusted estimate 53.4 per cent lower than April 2019 and 46.1 per cent lower than March 2020.
There were just 46,440 residential property transactions in April 2020
Given that property transactions typically take around three months from an offer being accepted to the contract exchanging and completing the sale, there is always a lag in the official numbers.
Transactions completing in April would most likely have begun in February, before the fallout from Coronavirus really took hold.
However, it’s clear from the dramatic fall in completions that lockdown forced around half of all home sales in progress to stall in March and April. Much of that will have been down to valuers’ inability to conduct physical property inspections and thus provide accurate mortgage valuations.
The lag means we won’t know what is happening in today’s housing market for another two or three months at least – possibly longer given the backlog of stalled transactions.
What happens to house prices over the next few months is anyone’s guess. Buying agent Henry Pryor puts his finger on the problem.
Knight Frank forecasts that UK prices will fall by 3% this year and bounce back by 5% in 2021: Some forecasts have suggested average house prices could plummet by 30%
‘The market has only been open for two weeks so it’s far too early to know where prices are,’ he said.
‘Asking prices have opened where they were in March but we won’t know where sale prices are until late July by the time the post-Covid deals that have been agreed exchange contract, complete and are then recorded by the Land Registry.
‘In the meantime expect estate agents to suggest that it’s business as usual and buying agents like me to cough in a non-covid way when they do.’
Knight Frank forecasts that UK prices will fall by 3 per cent this year and bounce back by 5 per cent in 2021. Savills is of the view prices will drop between 5 and 10 per cent this year before bouncing back next year, depending on how badly the economy is hit.
Some analysts have suggested average house prices could plummet by up to 30 per cent – which might not be far-fetched in some areas and for some property types which fell by this or more in the aftermath of the credit crisis.
Chancellor of the Exchequer Rishi Sunak has warned Britain is facing a recession ‘the likes of which we haven’t seen’
Pryor believes some sellers will dig their heels in and demand February prices for their properties and the best may well got them.
‘Most buyers will feel that they are taking a risk and will want a discount to recognise that,’ he adds.
‘Whilst many will hope for 20 per cent off the asking price, most I suspect will settle for 5 to 10 per cent. Whether this will be enough come Christmas is anyone’s guess.’
The real elephant in the room is how many people lose their jobs when the Government’s furlough scheme comes to a close later this year.
It is feared as many as two million Britons could find themselves out of work when the £10bn-a-month furlough scheme ends in October, after being ramped down in the preceding months.
Mass redundancies will lead to a sharp rise in people falling behind on their mortgage payments. A flood of repossessions and consequent property firesales is a scenario that the regulator and Government will want to avoid if at all possible.
However, there will come a point for many households when it is better to sell their home and find something cheaper rather than struggle or fall behind with mortgage payments.
Along with rising trade tensions between the US and China and the virus pandemic only just beginning to hit emerging economies, the global outlook is wildly unpredictable. While the stock market has recovered strongly since its March lows, there are still fears that any fresh bad news could send it crashing again.
Brexit negotiations and the UK’s withdrawal from the European Union notwithstanding, the Chancellor of the Exchequer Rishi Sunak has warned Britain is facing a recession ‘the likes of which we haven’t seen’.
For the housing market to get back up and running properly, home valuations are fundamental
For the housing market to get back up and running properly, home valuations are fundamental. Mortgage lenders rely on them to assess how much risk they are taking on when approving a mortgage application or remortgage request.
Speaking anecdotally, valuers say lenders remain deeply worried at how accurate valuations can be without comparable sales prices available for a post-coronavirus housing market. It is new territory.
So concerned are banks and building societies on this point that the Bank of England was prompted to issue guidance this week on how and when to value properties that underlie mortgage loans on lenders’ balance sheets.
A statement from the Prudential Regulation Authority revealed the regulator has received a number of questions from firms in relation to valuations.
It said: ‘In particular, given the recent disruption in the property market caused by Covid-19, firms have identified difficulties in conducting physical inspections due to social distancing measures, obtaining reliable property valuations and determining appropriate approaches to suspended or unreliable house price indices.’
Many valuations at least can be delayed until there is more clarity.
But for those needing to buy or sell a property now, it’s going to be very difficult to value anything for the next six weeks.
‘I was shown a fantastic three-bedroom flat in central London asking £5.5million,’ Pryor tells me.
‘The agent instantly mumbled “four and a half would probably do it” before I had got my face mask and rubber gloves on!
‘The truth is nobody knows. A property is worth what someone will pay for it.’
John Baguley, valuations director at the Royal Institution of Chartered Surveyors, is keen to underline exactly this point.
‘All valuations should be assessed to market value and that is defined by what a willing buyer is prepared to pay a willing seller to transact,’ he says.
‘The role of the valuer is not to make the market, it is to interpret the market as it is and we use a scale of factors to make those judgements.
‘Ideally we want to consider what identical properties in similar locations actually sold for as recently as possible. In normal circumstances sales values from three months ago might be considered recent, but clearly now the market is very different.
‘In the absence of those comparable property sales we can also be looking at what is happening with asking prices, market activity and other supporting information to form an opinion of market value’
Mr Baguly’s pragmatic and balanced view on valuations makes sense, but there are those who expect valuations to become overly conservative.
Speaking live on a webinar hosted by trade publication Mortgage Introducer, buy-to-let lender Landbay chairman Tony Ward warned that the result would be a slew of down valuations.
‘I sympathise with the valuers because they know that house prices are likely to go down, they just don’t know – as nobody does – by how much and for how long and which ones will be affected the worst. It is too early to tell,’ he said.
‘So they are likely to overcook it. We will see valuations on the downside probably, because they are at risk.
‘We have to understand that valuers are giving an opinion that, if it is wrong, three, four, five years down the line they could be sued for that opinion for losses incurred because they overvalued.
‘They are almost certainly going to be doing the opposite, which is downvaluing.’
This has obvious implications for homeowners hoping to sell and for hopeful buyers.
Property transactions agreed before the crisis are already being renegotiated as buyers fear their offers are no longer accurate.
It will leave those who must sell soon forced to accept lower offers – though they should also be able to secure cheaper prices themselves when moving.
Those not forced to sell now are likely to sit on their hands until there is more clarity about the outlook for property prices. This restricted supply could in turn support prices.
But it would lead to a collapse in transactions – bad news for estate agents, valuers, mortgage lenders, brokers and conveyancers, all of which rely on the volume rather than value of home sales for an income.