If property prices drop further, what does it mean for UK buyers?

By SofiaAugust 28, 2020London's Blogs

The UK has entered a ferocious recession for the first time in eight years. The recession has come as a result of a weakening economy and falling incomes caused by the effects of the coronavirus. The recession is having a knock-on impact on property prices in the UK, with the possibility of cheaper housing on the horizon.

With such a hard hit on the economy after the coronavirus, potential buyers are wondering whether now is the time to invest in a property. Especially as house prices may be at their lowest in years. There’s so much uncertainty surrounding the state of the economy, and questions raised over whether house prices will drop even further or higher than before.

Is it wise for buyers to enter the market now while prices are low, or wait until the housing market stabilises over the next year?

Why are property prices falling?

The changes in the country’s financial circumstances have ultimately led to the fall in house prices. There’s been a lack of demand over the past six months for buyers wanting to move properties. The coronavirus pandemic caused businesses across the country to close their doors and furlough staff. With millions of people in uncertain financial circumstances with the possibility of losing their jobs, committing to mortgages and payments has been a no go.

This could all change as lockdown eases and people become more secure in their financial positions. Businesses are opening back up and starting to bring back employees to full-time work and pay. This means demand may begin to increase and competition for properties may resume.

It’s important to note that changes to house prices aren’t across the board. They differ from area to area of the country depending on what’s desirable at the time. As millions of workers are now required to work from home, many full-time, we could see a rise in house prices in areas outside of city centres. People may want more space for a home office in a quieter area so they can work productively without the disruptions of busy city life.

House prices are dependent on a number of factors such as mortgages, employment, demand and the economy. This means that rates can fluctuate as other factors come into play over the future months. The government’s official forecast has predicted that the fall in prices could range from anything between 2% to 22% by the end of next year. This is a lot of uncertainty for buyers, especially first-time buyers.

Should buyers take advantage of the drop in house prices?

You might assume that house prices dropping is an opportunity for a more affordable deal. However, experts have warned that a fall in house prices doesn’t necessarily mean you can now afford a house. Those with deposits already saved up in the bank may be in the position to jump at the lower prices. Unfortunately for those who’ve experienced financial difficulties and haven’t been able to save up, lower prices still make properties unobtainable for now.

There are a number of factors that have in fact opened the gap between those in a position to buy and those who want to but can’t at present:

Mortgage lenders

Mortgage lenders are putting restrictions on loans they’re giving to property buyers. Many lenders have capped the loan amounts at 85%. This means you need at least a 15% deposit to get your mortgage loan agreed. This is because of the financial uncertainty many people are facing. Lenders are worried that buyers won’t be able to pay back their loans due to employment issues.

They’re asking for larger deposits to secure loans and ensure that buyers are in the best position to pay back the money they’ve borrowed. This puts first-time buyers even further away from a house move. Unless buyers have a hefty deposit ready to go, or are able to get financial support elsewhere, it’s unlikely they can make the move whilst house prices are low.

Stamp duty holiday

The government’s stamp duty holiday puts a pause on stamp duty up to the first £500,000 of all property sales in England and Northern Ireland. Many first-time buyers aren’t buying houses that cost enough to be taxed stamp duty. The holiday means those with the ability to buy more expensive properties can do so sooner as they have the opportunity to save as much as £15,000 if buying a property over £500,000.

The holiday will last until 31 March next year and hopes to give a boost to the property market and economy. If buyers had already completed their house move before the 8th July, they don’t benefit from the stamp duty holiday and will have to pay the full taxable amount.

Property value

As people’s employment circumstances are changing so quickly, it’s difficult to predict where demand for houses is going to be. As mentioned above, house prices in suburban areas may increase as people look to move away from the city for more room, a garden and home office. However, this is the current situation, and as we know, it may all change depending on the further effects of the coronavirus on the economy. The value of these properties may be high now, but could decrease in the next year or so as city life becomes more popular again.

So, while the fall in property prices looks attractive to buyers right now, it may not be the right time to buy. Employment, demand, value, mortgages and stamp duty all play a role in whether buyers can make a house move safely. For buyers with large deposits already, the fall in house prices is the ideal opportunity for a cheaper deal. However, first-time buyers may be off the market for a while until mortgage lenders can provide better deals and more affordable deposits.

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