The big question in property circles at the moment is: How will Coronavirus (Covid-19) affect UK property prices?
Are we heading for an economic meltdown and a property crash as a result of the global pandemic?
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At quite astonishing speed, talk of a post-Brexit “Boris bounce” in the UK economy has been replaced by justifiable fears that we are heading for a sudden, steep world-wide recession with catastrophic consequences for the global economy.
The adverse impact will spare few sectors of the economy – and property is not expected to be one of the sectors spared.
The economic impact of Coronavirus
The effects of the Coronavirus are already been felt. According to the Guardian, Chinese industrial output fell 13.5 % in January to February.
US shares have fallen 20% from their previous high, causing a bear market.
Central banks across the world have slashed interest rates to near zero. However, stock markets continue to fall steeply – an ominous sign that the markets believe the worst is yet to come.
The pandemic has led to the lockdown of several countries including Italy, Spain and France. The USA is moving fast to lockdown.
The pandemic seems likely to do serious economic damage to almost every country in the world.
In the UK, an increasing number of activities are being locked down incrementally as a strategy to slow the spread of the virus, enabling the National Health Service to better cope with the crisis.
The key thing about ever-growing lockdown world-wide is that people are not working. Factories, offices, shops, sporting events and leisure facilities have closed or are closing.
Consumer spending and economic production seem to be grinding to a halt.
With this sudden collapse of economic activity world-wide, property cannot escape unscathed.
Impact of Coronavirus on property prices
Although the Bank of England has cut base rate to just 0.25%, it seems extremely unlikely that there will be a general rise in house prices in the near future.
The opposite is likely – property prices seem very likely to fall, at least in the near-term.
The UK as a whole is in a state of uncertainty, fear and even panic.
People are understandably worried about the unprecedented health risks of the pandemic.
There are fears that thousands of people will die and millions of people hospitalised as a result of the virus.
A recession, two quarters of negative growth, seems almost certain. That is likely to lead to widespread job losses.
Unemployment and recession are factors which tend to cause a fall in property prices.
In the near to medium term, all the indicators point to flat-lining or falling property prices.
Covid-19 seems highly likely to lead to a significant fall in house prices nationwide and probably across the globe.
Against this alarming backdrop, you may think now is not the time to buy a property.
However, taking a contrarian perspective, now and the coming months could be a good time to buy. However, whether it is a good time for you to buy will depend on your financial circumstances.
The impact of Coronavirus on property prices will help some buyers
Not everyone will be affected the same way by the impending economic crisis.
If you are in a secure job, and suffer no loss of income as result of the economic meltdown, the fall in interest rates will make mortgages cheaper for you.
With prices falling, you may be well placed to secure a bargain purchase from sellers who need to sell fast.
Your position will be especially strong if you have a deposit already saved up or can secure a deposit by releasing equity by remortgaging a property you currently own – taking advantage of the low interest rates.
As a rule, a good time to buy property is in a downturn. If you can safely buy in the forthcoming downturn, you will benefit in the longer term once property prices inevitably rise.
The impact of Coronavirus on property prices will NOT help some buyers
It is risky to buy in the current climate if your employment status is weak.
If you are a part-time worker or someone working in the gig economy on a zero-hours contract, you could be putting yourself in financial danger by buying in such turbulent times.
However, if you have plenty of equity in your home (or other property) and have or can raise a deposit without undue risk, you may be able to pick up a bargain investment property from a distressed seller.
One trend in the market place is the rise of affordable long-term fixed rate mortgages.
With interest rates being so low, you can minimise the risk of future interest rate rises by locking into a well-priced, long fixed rate mortgage.
Remember to seek the advice of an Independent Financial Adviser (IFA) before selecting a mortgage.
The impact of Coronavirus on property prices is bad news for sellers
The impact of Coronavirus is likely to be very bad news for property sellers.
The pandemic is likely to lead to a fall in property prices. Further, sellers are likely to see fewer buyers. In addition, buyers – especially investors – are likely to be aggressive in terms of driving down prices.
If you are looking to sell, you should put off selling if at all possible.
If you do need to sell now or soon, consider whether you can add value before selling – thereby mitigating your losses.
You may be able to add value by refurbishing your property cost- effectively, such as by adding a new kitchen or bathroom.
There are a number of other ways to add value to a property including:
- Creating a loft room
- Converting a basement
- Adding an extra bedroom
- Building a conservatory
- Extending a lease.
8 fab ways to add value to your home (things to do to add value to your property)
Always add value before you sell (3 reasons to up your home’s value before selling)
40 ways to add value to a home (a must use action list for savvy homeowners)
The impact of Coronavirus on people with an interest only mortgage
A fall in house prices due to Coronavirus is very bad news if you own your home or an investment property on an interest only mortgage which is coming to an end in the next year or two.
At the end of an interest only mortgage, you are obliged to pay back the outstanding mortgage debt.
You may intend to do that by selling the property and paying off the mortgage loan from the proceeds of sale.
If property prices are falling, your equity in the property will fall, leaving you with less money after you sell.
If property prices start to fall fast, the sooner you can sell, the better – the smaller your losses.
Instead of selling at a time of falling prices, consider speaking to your lender to see if they are willing to extend your mortgage by a few years, enabling you to sell when prices have hopefully recovered in the future.
Alternatively, consult an IFA and see if you can remortgage with another lender.
CONCLUSION: How will Coronavirus affect house prices?
Coronavirus is likely to kill off the post-Brexit property upturn which seemed so likely at the start of the year.
At best UK property prices seem likely to flat-line for the next year or two.
However, if the worldwide pandemic is as bad as some predictions, there could easily be a double digit fall in prices in some parts of the UK.
If you are looking to buy and prices fall, you will gain from lower prices and will benefit in the long-term when prices recover. However, if your job security or financial position is weak, there may be risks in buying in the current climate.
If you are looking to sell, or need to sell in the near future, the prudent thing to do is to wait and see how prices perform over the next few months.
How do you think Coronavirus will affect house property prices? Are you expecting a modest or large fall in prices? Are you expecting a short-term impact or something long-term?
Rebel Property Coach
About the author
Dalton Barrett is a solicitor, conveyancer, investor, PRS registered property coach and best-selling Amazon author. Read about his unconventional worldview of property here
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