House prices look set to fall in the UK. With the UK experiencing its biggest recession on record and employment numbers declining, it’s no surprise that house prices are likely to follow the rest of the economy.
While a Royal Institution of Chartered Surveyors (RICS) market survey confirms the rise in demand for housing and prices increases seen throughout July, many estate agents believe the withdrawal of government support schemes will lead to a collapse in demand and prices.
The Office for Budget Responsibility (OBR) had already predicted a house price fall of 2% - 22% by the end of 2021. The OBR's central forecast is for prices to fall 11% by the end of next year, after which it projects a flatlining in prices.
The COVID-19 pandemic has had an influence over housing trends in several ways, but most significantly on prices. While falling prices are typically favourable for first-time buyers, it’s unlikely this demographic will feel any benefit.
The Resolution Foundation’s latest Housing Outlook report suggests that although many young people used lockdown as an opportunity to save, they still face significant obstacles when it comes to getting on the housing ladder.
The report highlights the four primary challenges as being:
- Mortgage lenders are likely to demand higher deposits. With the economy expected to be unstable until the end of 2020 at the earliest, lenders will seek to protect themselves against customers defaulting on payments. Even those who have spent lockdown adding to their savings may suddenly find the amount they need to raise has risen, even if house prices fall. It may also prove tougher to have a lender accept a mortgage application.
- Saving is likely to be more challenging. The report highlights that over 50% of renters aged 25 – 34 have no savings. Even diligent savers have increasingly had to use their savings due to an income reduction in the past six months. Those who haven't had to spend their savings may have been unable to save as much as they were previously.
- The government's much-vaunted stamp duty holiday, although given credit for July’s mini-boom, does little for first-time buyers. Many first-time buyers weren’t purchasing property to which stamp duty would apply anyway. Before the stamp duty holiday, first-time buyers had an advantage in the market, as movers were more likely to have to consider stamp duty when seeking a new property. That advantage is now gone.
- The jobs market could prove a barrier to first-time buyers. With the economy volatile, younger people may find themselves needing to travel further for work. Alternatively, they may need to relocate to a more expensive location, such as a city, for a new job. While having a new job is positive, the more expensive cost of living will mean either a higher barrier to entry to the property ladder, or the ability to save for a deposit hindered by higher rental costs.
Lindsay Judge, a co-author of the Resolution Foundation's Housing Outlook Q3 report, said, "Although prices are projected to fall - perhaps dramatically - in the wake of the pandemic-induced recession, this drop won't make things any easier for typical young first-time buyers looking to purchase their first home.
"The current crisis looks set to deepen pre-existing inequalities and the growing divide between those who are able to look forward to home ownership, and those for whom this dream is increasingly out of reach."