Is Now the Right Time to Buy a House in the UK

The Coronavirus outbreak has turned society on it’s head and many property buyers are now wondering if the next recession has already begun. With the current breakdown in everyday society many would wish for the good old days of Brexit uncertainty when you compare it to the current crises we are facing!

The government are adding fiscal measures everyday and it seems that they are willing to prop up every home owner in the UK. Currently measures to prevent any possibility of repossession and a 3 month mortgage payment holiday period have been put in place to help home owners. Such measures may be able to freeze the property market in a stagnant moment in time. But what happens when this outbreak is over? What happens if this outbreak continues alongside a recession, will our fiscal measures be able to support house prices?

If you are affected by Coronavirus and are concerned about meeting your monthly mortgage payments, take a look at our article about what help is being offered to homeowners by the Government during Coronavirus.

Currently the Property Market is in a Static State

Property viewings have currently stopped and the UK has been put on a National Lockdown. It’s uncertain when agents and home sellers will be able to show a house. Prices may remain stable in the meantime due to a lack of activity from buyers or sellers. The government have effectively paralysed any movement in the property market and in doing so this prevents panic selling.

A Recession was Already on the Horizon

Even before the Coronavirus outbreak a recession was already on the Horizon. The stock-markets where already exhausted and it was looking like the bubble was about to burst. House prices had already been hurt by Brexit and people where concerned that Brexit was about to cause the next recession. Most importantly the cycle of Boom and Bust is almost a natural thing and the past four recessions have happened approximately every 10 years 1981, 1990, 2001, 2007, it’s safe to say that the next recession has been overdue.

July 1981 > November 1982 (Federal Reserves Monetary Policy reigning in inflation)

9 Years till Next recession

July 1990 > March 1991 (overbuilding in construction and major Interest rate hikes)

11 Years till Next recession

March 2001 > November 2001 (Over priced Tech Company’s Dot Com bubble bursting)

7 years till Next Recession

December 2007 > June 2009 (Housing bubble burst caused by sub prime lending)

Coronavirus won’t Make Prices Fall but A Recession Will

The Coronavirus outbreak may not cause prices to crash as there is currently no movement. However, in a recession where we see a lack of buyers (because people often wait for lower prices), sellers are therefore forced to knock tens of thousands of pounds off their asking price to achieve a quick sale. In the current Coronavirus outbreak it would be pointless for sellers to start advertising cheaper prices as nothing is moving at all.

Other historic measures such as the Financial Conduct Authority instructing lenders that they are not allowed to repossess any properties which also includes saving those who were already facing repossession is another extraordinary measure that we didn’t even see in our last recession. The current chancellor has been both compassionate and extremely generous.

These measures in freezing the property market will work in suspending prices during the beginning of this Coronavirus outbreak and may see us comfortably through the next few months, but the government can’t keep the property market propped up forever and if a Global recession combined with the virus outbreak ensues, then surely it is only a matter of time until the governments ammunition runs out.

Prices may Fall and then Rise due to Hyperinflation

The Chancellor Rishi Sunak has announced billions of pounds in financial support for funding everything from wages to an unlimited budget for the NHS, at the same time the government are announcing tax deferring methods so they aren’t going to be able to collect taxes in the near future. At times of crises a period of Hyperinflation can follow due to the devaluing of our currency, a bit like what we have seen in Zimbabwe where people have bundles of worthless cash. That may be an extreme example for the UK but it is thought that the chancellors current injection of funds may result in a 20% inflation of everyday items such as our food and bills, at the same time wages will have to increase and over time house prices should also increase in line with inflation, to reflect the new lower value of our pound.

How Far could Property Prices Fall

When looking at the recession of 2008 property prices fell 18% lower than their previous high. This happened over a prolonged period where there was 14 consecutive months of lower house prices and then we saw a good recovery in 2013 – 2014. Currently home owners are receiving incredible support but with closures of companies and a loss of jobs that can’t be replaced. Once the Coronovirus outbreak is over home owners may be left with no job and no mortgage holiday and may be forced to sell their home. There will likely be an over supply of sellers and a lack of buyers due to others financially struggling, buyers waiting it out and an unavailability of mortgages, like we saw in the last recession. Depending on the severity of the situation sellers will be forced to reduce their prices to achieve a quick sale. This may cause house prices to tumble quicker than the 14 months it took in the last recession.

Take a look at our article What Will Happen to House Prices during Coronavirus to see our prediction on how severe the next recession will be.

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