How is the coronavirus pandemic affecting UK house prices? June 2021 update

While the coronavirus pandemic has impacted upon practically all facets of life, it appears that the UK government’s “road map” out of COVID-19, coupled with the success of the vaccination rollout, means that the country is slowly but surely returning to some sense of normalcy. While concerns about new variants mean that the June 21st reopening date could be delayed, the better news is that hospitalisations and deaths attributable to the virus continue to decline.

This sense of optimism seems to have pervaded the UK housing market, too. During April 2021, house prices rose by 2.1% in comparison to March, accounting for the biggest increase in housing values for nearly two decades. This means that the average house price in the UK measures just over £258,200. In real cash terms, this equates to more than £20,000 in comparison to just over a year ago, when house prices dropped to unprecedented lows.

Has the UK government done enough for the housing market?

Much of the UK’s housing market activity over the past year can be attributed to the government’s stamp duty holiday. While some experts predict that market activity is likely to fall at the end of June, when the stamp duty holiday ends, there are still reasons to be optimistic about house price predictions - even with the uncertainty around new variants and quarantine protocols.

How is coronavirus affecting house prices in the UK?

Lockdown has meant that many of us have spent over a year cutting out non-essential expenses - trips to restaurants, nights out at the pub, day excursions and even holidays abroad. While many of us may have missed out on doing the things we enjoy, months of saving during lockdown has allowed many potential buyers to get enough cash together to invest in their ideal properties.

Furthermore, policies like the new mortgage guarantee scheme have allowed some people to take their first steps towards the property ladder earlier than expected.

A surge in demand for more space, both inside and outside, has further cemented this spike in demand.

This increase in demand across the board has helped to drive property values during the coronavirus pandemic and is likely to continue to have an effect over the next year or two, as first-time homebuyers enter the market in great numbers and people continue to look for more living space.

Houses are now selling at the fastest rates ever recorded, with the average house taking just 45 days to be marked as sold by an estate agency. In addition to this, nearly a quarter of all properties on the market in March went under offer within a single week.

Some experts predict that if this demand continues (not just among first-time buyers, but also among existing property owners who have saved money during lockdown) that a lack of housing supply could result in a “super boom” of housing growth, with price percentage increases hitting double digits.

Post-pandemic construction and UK house prices

The government is keen to boost housebuilding, and despite the coronavirus pandemic, the construction industry has continued to see strong activity – new builds rates are the highest for nearly seven years. However, some of this growth can be attributed to development projects which have been delayed - some due to the pandemic, others due to previous economic factors.

While it would seem logical that an increase in housing construction would alleviate house price pressures by increasing the level of supply in the market, this isn’t necessarily the case. The boom in construction has meant that demand for raw materials is at an all-time high, and being able to source these materials has proved tricky for suppliers and builders’ merchants across the country.

Restrictions on deliveries due to the pandemic and customs issues exacerbated by Brexit have proved tricky to protect against for many in the construction industry. Material shortages and price increases will be reflected in the price of new housing projects, meaning that house prices should continue to remain stable and even continue to grow as the UK leads the way out of the pandemic.

When will house prices drop?

The housing market has performed incredibly strongly throughout the pandemic, although some experts predict that economic fallout experienced across other industries and the wider UK as a whole must eventually catch up with the UK property industry.

Some of the UK’s largest mortgage lenders are predicting a fall of up to 5% for the year 2022 as a whole, as rising unemployment - which could potentially be exacerbated when the government’s furlough scheme comes to an end - takes its toll on the overall health of the economy. The furlough scheme, which has covered 80% of wages (up to £2,000) of those unable to work during the pandemic, is expected to come to an end in September 2021. However, employers will be expected to contribute towards workers’ salaries from July, which is when the first impacts are most likely to be felt on the economy.

How long will the economic fallout last?

It can be difficult to predict the longevity of economic fallout caused by the pandemic, although experts are optimistic that many industries will begin to self-correct as the UK navigates its way out of the pandemic. The job market will inevitably adjust to the incoming changes, and while this means unemployment may temporarily rise, once most industries return to a sense of “normalcy” we can expect to see a correction in earnings.

Naturally, this means that many people who are worried about losing their jobs over the tumultuous post-furlough period may be apprehensive about committing to a mortgage - but this doesn’t necessarily mean house prices will be affected too considerably. After all, existing property portfolio holders will understand that the demand for rental properties is continuing to increase. In addition to this, new practices like working from home are likely to be here to stay, long after the pandemic has subsided. This means that many renters are now looking for larger, more luxurious properties in which to station a home office or to at least have a comfortable outdoor space for relaxation away from their laptop or workspace.

This demand among renters has a knock-on effect, which ultimately increases demand for property among those already holding extensive portfolios. Again, this contributes to the overall health of the housing market, meaning that prices - even if they do take a considerable dip towards the end of 2021/beginning of 2022 - are likely to come back with a newfound stability in a world rebuilding after COVID-19.

Conclusion

If previous recessions have taught us anything, it’s that property is one of the most resilient investments anybody can make. Even during times of economic uncertainty, property prices rarely fall significantly. The current pandemic has caused the deepest recession the UK for decades, while housing prices have risen at their fastest rate in nearly a decade, with mortgage approval rates also at their highest levels in ten years.

Yes, there may be some headwinds on the horizon, but increasing demand for housing, a shift in demand for home working and a desire for extra space all mean that housing prices will continue to grow. At present, supply simply cannot outstrip demand, and while this is the case, property prices will remain stable - whatever the external economic conditions.