Wednesday 3 June 2020 4:43 pm

How badly will coronavirus hit UK house prices in 2020?

UK house prices could fall by as much as 10 per cent this year due to the impact of coronavirus, experts predict.

UK house prices had started to recover from uncertainty caused by Brexit at the end of 2019.

And the so-called Boris bounce from the Tories’ election victory in December set the market up for a strong start to 2020.

Read more: It’s official: Coronavirus killed UK house prices’ Brexit recovery

But then coronavirus came along, sending the UK into lockdown – meaning buyers couldn’t visit houses, a fairly crucial step when moving house.

The dramatic economic hit has also made people more wary of making big purchases right now.

While the impact of the coronavirus outbreak on UK house prices is not yet fully understood, analysts believe they will dip in the second and third quarters of 2020. 

Read more: UK house prices dip as coronavirus lockdown makes sales ‘almost impossible’

The latest data from Nationwide confirmed that UK house prices were hit hard by the coronavirus lockdown.

UK house prices dropped at the fastest rate since the financial crisis in February 2009, falling 1.7 per cent in May compared to growth of 0.9 per cent a month earlier, the bank said.

Rightmove research showed the average price of property coming to market in April dipped 0.2 per cent to £311,950. By contrast, in April last year UK house prices increased 2.1 per cent.

The property platform said at the time that there is not a “functioning [housing] market” due to the coronavirus lockdown and that new sales were “almost impossible”.

Meanwhile, UK inflation fell back to 1.1 per cent in February after climbing to an eight-month high of 1.5 per cent in January.

Read more: It’s official: Coronavirus killed UK house prices’ Brexit recovery

What will happen to house prices in 2020?

Analyst predictions on the impact of coronavirus on UK house prices vary due to the uncertainty surrounding the lockdown exit plan and the wider economic impact.

Listen to our daily City View podcast as we chart the economic fallout and business impact of the coronavirus pandemic.

Knight Frank: Prices to sink seven per cent

Knight Frank had previously predicted that average UK house prices will dip three per cent this year. It also estimated property values in London would fall two per cent. However, that analysis was based on the prediction that the UK lockdown would have reversed by the end of May.

Following the government’s announcement this week that the lockdown will be eased in stages through to at least July, the estate agent is now forecasting that UK house prices will fall seven per cent.

Prime London house prices will drop five per cent this year, Knight Frank said.

“Since Sunday night it’s become clearer that some lockdown measures will remain in place into July and that social distancing rules governing day-to-day life, including property transactions, may remain in place beyond that,” it said.

Knight Frank added UK house prices and London house prices shouldn’t drop lower than this.

“It is increasingly clear that prime London’s five-year decline doesn’t means it is immune from price falls,” it said.

“However, it would be wrong to assume a continuation of the decline we have seen over recent weeks. The key question is will vendors accept discounts of more than five per cent? There is growing evidence… that many simply won’t.

“Add in to the mix the fact that we have low new-build rates coming through in 2020, low inventory and low interest rates, it becomes less likely we will see significant further falls from here.”

Royal Institution of Chartered Surveyors (Rics)

UK house prices are expected to fall by more than four per cent, according to 40 per cent of respondents to the latest Rics survey.

Meanwhile, 35 per cent of those surveyed said they expected UK house prices to drop by up to four per cent this year.

The Rics headline house price balance also fell into negative territory for the first time in thee months, with a net balance of minus 21 per cent of respondents reporting a fall in house prices in April.

Zoopla: Impossible to predict scale of blow

“History tells us that house prices tend to fall when the economy shrinks as a result of falling output,” says Richard Donnell, research director at property platform Zoopla.

“[This] has a knock on impact for unemployment or higher borrowing costs – all things that can result in more ‘forced sellers’.”

“Thus the scale of the impact on house prices depends upon the scale of the economic impact from Covid-19.”

Read more: Foxtons targets £22m equity raise amid London house prices blow

Savills: House price fall of up to 10 per cent

Estate agent Savills estimated that average UK house prices will fall between five per cent and 10 per cent in the short-term while the low transaction market caused by the coronavirus lockdown continues. 

EY: House prices could fall five per cent

Howard Archer, chief economist at EY Item Club, forecast that UK house prices could drop by up to five per cent over the next few months.

“Relief for the housing market has come from an easing of restrictions on 13 May,” he said.

“While the easing of restrictions should allow housing market activity to progressively pick up, it looks unlikely to return to the levels seen at the start of 2020 for some time to come.

“Activity is likely to be limited, in the near term at least, by the impact of Covid-19 on the economy, and the fact that consumer fundamentals appear to have taken a downturn.”

Chesterton’s: House price drop of two per cent

London estate agent Chesterton’s also estimated that house prices in the capital will fall two per cent in 2020 due to coronavirus. 

Lloyds: House prices to fall five per cent

Lloyds has predicted that it is likely that house prices will fall five per cent this year, before beginning to recover in 2021. 

In the most positive scenario, the bank modelled that house prices could dip 2.2 per cent this year before bouncing back next year. 

However, in its worst case scenario house prices would plummet ten per cent, with an aggregate decline of 30.2 per cent by 2022. 

Capital Economics: House prices will decline by around five per cent

Capital Economics said it expects house price declines of about 5 per cent on average, rather than deep crashes.

In a research note it said: “Unlike in previous downturns, residential property has not been the root cause this time.

“Even so, house prices will not escape this recession unscathed. If policy support proves effective, if lockdowns hamper property sales, and if demand rebounds later this year, house price crashes are unlikely.”

When will UK house prices bounce back from coronavirus? 

Despite the gloomy outlook for house prices this year, most analysts believe the housing market could make a strong recovery by 2021.

CBRE said that pent up demand in the period after the coronavirus crisis is likely to cause a “spike in activity” in the housing market. 

Knight Frank: London house prices to jump six per cent in 2021

Knight Frank forecast that London house prices will jump six per cent in 2021.

Chestertons said it expected to see growth of three to four per cent in central London next year. 

Read more: UK house prices dip as coronavirus lockdown makes sales ‘almost impossible’

Savills: London house prices to lead recovery

Despite forecasting a steep decline in UK house prices this year, Savills was more optimistic about the years ahead. The estate agent’s analysts say mid-term price growth will be an average of 15 per cent over the next five years, with prime central London leading the recovery. 

EY: House price recovery of two per cent in 2021

However, EY Item Club’s Archer was more cautious, saying UK house prices could grow by two per cent next year.

“The EY ITEM Club expects house prices to stabilise towards the end of the year and then start recovering gradually as the UK’s economic recovery gains traction, the labour market starts to recover and consumer confidence improves,” he said.

“Very low borrowing costs should also help matters with the Bank of England unlikely to lift interest rates from 0.1 per cent until well into 2021. Even so, we expect house price gains to be no more than two to three per cent in 2021.”

Lloyds: Recovery to begin next year

In Lloyds’ base case scenario house price growth will be two per cent in 2021, rising to 2.5 per cent in 2022. This would be a jump of 0.7 per cent between 2020 and 2022. 

The bank modelled several different scenarios, depending on how badly the wider economy is impacted by the pandemic.

The most optimistic outlook would see house prices rebound to grow by 6.8 per cent in both 2021 and 2022. 

Lloyds’ severe downside modelling showed that house prices could plunge 10.9 per cent in 2021 and a further 12.9 per cent the following year.  

Nationwide: Sharp recovery after lockdown

Nationwide has predicted that the economic measures put in place by the government during the coronavirus pandemic could help UK house prices rebound sharply after the crisis has passed.

The bank said the medium-term outlook is “highly uncertain”. But a sharp recovery is possible when the coronavirus lockdown is lifted. 

“Much will depend on the performance of the wider economy,”  Robert Gardner, chief economist at Nationwide, said.

However he said measures  such as £330bn in business support and the government’s job retention scheme could keep borrowing down and allow UK house prices to bounce back.

“The raft of policies.. should set the stage for a rebound once the shock passes,” he said.

Read more: UK house prices: Experts predict sharp recovery after coronavirus lockdown

The latest figures showed that UK house prices grew 3.7 per cent on an annual basis in April – the strongest rate of growth in 26 months. This shows that UK house prices were recovering from Brexit uncertainty. 

And month to month UK house prices grew 0.7 per cent, as the average UK home jumped in value from £219,583 in March to £222,915 in April.

Rics

The Rics UK residential market survey for April suggested that sales levels will rebound to their previous levels within nine months.

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However, the research found that UK house prices could be slower to recover. Respondents to the Rics survey said prices will take 11 months to reach levels recorded before the coronavirus outbreak.

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