The Rise and Fall of the Residential property Market

By Holly Mapletoft BA MAAT


What shape is the residential property market in, how did it get there and what can we expect to happen next?

When we speak of house prices, it is about an average, and, as with any statistic, this is open to interpretation. The average house price varies wildly across regions, with London houses demanding roughly four times the price of Liverpool. So in this blog, I am looking at the UK average, this will mean it probably won’t fit any region exactly but gives an idea of trends rather than specific prices.

Historically

Graph taken from economicshelp.org

As you can see from the above graph, the trend is usually upwards, this makes sense as the value of money has changed over time, your £20000 that could buy you an average house in 1979 wouldn’t even buy a mid range car today.

Graph taken from economicshelp.org

The above graph takes inflation into account and is therefore a better guide. Here you can see more troughs and peaks, you can see in this graph the early 80’s recession, the early 90’s recession and the ‘great’ recession which was the deepest since the second world war, caused, among other factors, the subprime mortgage crisis.

So, historically, it has been a bit of a roller coaster but generally upwards.


Now

We find ourselves in an unprecedented situation. Covid has swept across the globe and had devastating effects on health and economies. Governments have expended untold amounts on trying to keep their countries afloat, and it all has a knock on effect on house prices.

With the introduction of lockdown and only essential shops being open for a period of months, then the expense of introducing new safety measures, allowing less customers in your shop at any one time, all adds up to less profits, if you are lucky enough to be able to make any. This is just one industry, similar stories are happening across many business streams.

Some businesses could not withstand the initial lockdown, even with government grants, some have struggled through only to find that the trade has not increased sufficiently post lockdown to allow their survival. Other businesses have adapted and managed to thrive, I am sure the likes of Amazon have seen huge boosts as more shopping gets digitalised.

All this means loss of income and jobs, leading to an inability to fund a mortgage, there is likely to be an increase in repossessions and therefore a flood of properties coming onto the market, when the government legislation putting them on hold is eventually lifted. This would point to another dip in the housing price.

However, the government temporary cut in stamp duty between 8 July 2020 and 31 March 2021 has had a dramatic effect. As house buyers dash to take advantage of this, house prices rocket in response to the increased demand.


The Future

I am not, I’m afraid, in possession of a crystal ball, so this is all conjecture from this point on!

Unless some other measures are introduced to mitigate it, when the ban on repossessions is lifted and the stamp duty cut draws to a close, the expected slump in prices will happen. I would hope that the government will put in place something to ease the impact, but we are in their hands.

The government is proposing to launch 95% loans (Loan to Value Mortgages) in Spring 2021 and this would help many first time buyers climb over the biggest barrier to climbing onto the property ladder, that is, the ability to get a mortgage.

Unfortunately, I see it likely that it is the lower paid who will be most likely to have found themselves in trouble, either through unemployment, rising prices in shops as they inflate prices to cover their costs. It is therefore likely to be lower costs homes that come onto the market. Will landlords swoop in and hoover these up to rent out? Let’s face it if repossessions are up, the number of potential renters will be too. We will need to be on the watch for the unscrupulous who will take advantage of this to supply substandard lettings.

With less demand for properties after the stamp duty sojourn, and more supply as a knock on from repossessions, even with the proposed 95% LTV mortgages, unless some minor miracle occurs, house prices will be heading downwards, how steeply is another matter.

We can however, take heart that these slumps have never yet been permanent and the market recovers and then increases, we may just have to wait it out.


This blog was inspired by an article in property wire.com and the historic data taken from economichelp.org.

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