Housing transactions are set to drop by as much as 60% over the next three months, as the market reacts to the impact of Covid-19, according to the latest UK Cities House Price Index by Zoopla.
Prior to the outbreak of Covid-19, the UK housing market got off to its “strongest” start for four years as average annual house price increased by 1.6% across UK Cities in February, up from 1.2% in the year prior.
As market momentum gathered pace in the wake of the General Election and house price growth increased. The market has since witnessed a dynamic shift, with consumer confidence and market activity hit hard in the wake of Covid-19’s impact from early March onwards.
Zoopla said that the Covid-19’s impact on the UK property market is “unprecedented”. The social distancing strategy has created an immediate impediment to property viewings and valuations, which are integral to the process of buying and selling a home.
Buyer demand over the seven days to 22 March was down 40% on the level recorded one week prior, as would-be home buyers paused on major decisions and took stock of the unfolding events in the UK and around the world.
Purchases already agreed and moving towards exchange of contract are continuing, but a rapidly growing proportion of sales are starting to fall-through, as buyers reassess the necessity of a large financial decision.
Fall throughs last week were 60% higher than the previous week, but new sales agreed currently remain higher than fall-throughs by four to one.
Also, Zoopla reported that interest from new buyers has “fallen dramatically”, but the market has not ground to a complete standstill. Sales continue to be agreed, albeit at a slower rate, down 15% on last week and 4% below levels recorded a year ago.
A fall in demand is expected to culminate in a reduction in sales agreed towards the end of the quarter and into the summer months, given the time lag between marketing a home to agreeing a sale and completing a transaction – a process that can take four to six months end to end.
Richard Donnell, director of research and Insight at Zoopla, says: “Covid-19 presents a major new challenge – not just for the housing market but for the UK and global economies. Fifty years of history shows that external shocks have impacted the housing market to differing degrees, largely down to the scale of direct impact on the UK economy.
“The initial impact of external shocks is to reduce consumer confidence and put a brake on housing demand and the number of people moving home, which we can see in our latest figures. Levels of property transactions are typically more volatile than changes in house prices.”
He added: “We do not expect any immediate impact on prices. Beyond this, the outlook for house prices largely depends upon how the government’s major package of support for business and households reduces the scale of the economic impact. Low mortgage rates mean forbearance will remain the preferred choice for lenders, but further Government support in these unique times cannot be ruled out.
“The timing of any rebound in housing market activity depends upon when new restrictions are lifted, and the extent to which households and businesses are able to return to a normal way of life. Browsing for homes online is set to continue and, while demand for property may rebound quickly, it will take several months for agents to rebuild new business pipelines.”