The COVID-19 pandemic has had a huge impact on the housing market and is set to continue influencing demand. So, will property prices continue to rise, or will they fall as pent-up demand dries up?

In spring, as the extent of the pandemic became clear, property viewings were banned, and some agreed deals fell through as the situation changed rapidly. Inevitably, this had an impact on the number of mortgages approved and property sales. Zoopla figures show that from the beginning of lockdown in March to the end of July sales worth £27 billion have been lost.

But since the market has reopened, demand and prices have surged in many parts of the country.

Reopening the market and Stamp Duty holiday leads to a booming property market

As the market reopened, Chancellor Rishi Sunak unveiled a Stamp Duty holiday in a bid to increase property sales. Homes valued up to £500,000 will no longer need to pay any Stamp Duty on the purchase if it’s for their main home. Properties purchased as a second home, holiday home or Buy- to-Let investment will still need to pay a 3% surcharge but the Stamp Duty holiday can significantly reduce the cost.

It’s a step, that combined with pent-up demand, worked in terms of getting the property market moving again.

The latest Halifax House Price Index found that in the third quarter, mortgage applications reached a 12-year high. Average property prices have increased too. In September, the average house price was 1.6% higher than in August and 7.3% higher than a year earlier. It’s the strongest growth seen since June 2016.

While positive for the housing market in the short term, it’s expected that other factors will dampen both demand and prices over the coming months.

Russell Galley, Managing Director at Halifax, said: “It is highly unlikely that the housing market will continue to remain immune to the economic impact of the pandemic. The release of pent-up demand and indeed the Stamp Duty holiday can only be temporary fillips and their impact will inevitably start to wane. And as employment support measures are gradually scaled back beyond the end of October the spectre of increased unemployment over the winter will come into sharper relief.

“Therefore, while it may come later than initially anticipated, we continue to believe that significant downward pressure on house prices should be expected at some point in the months ahead as the realities of an economic recession are felt even more keenly.”

Real estate advisors JLL now predicts that UK house prices will fall 8% in 2020 with 650,000 transactions expected, compared to 1.18 million last year. Several factors could lead to activity within the property market falling including:

1. Availability of mortgage finance

This is a factor that’s already having a significant impact on some buyers and, therefore, the market.

As the economic outlook is uncertain, many lenders have restricted their borrowing. In particular, mortgages with a higher loan-to-value (LTV) ratio have been withdrawn temporarily. This has disproportionately affected first-time buyers who now need a minimum 15% deposit for many lenders, compared to the traditional 5-10%.

As first-time buyers struggle to access mortgage finance, demand and movement within the market could stall as a result.

2. The economic outlook

The economic impact of COVID-19 is also a risk factor for the property market. The furlough scheme will come to an end in October and will be replaced by the less generous Job Support Scheme, potentially leading to higher levels of unemployment.

In the three months to August, the unemployment rate already hit a three-year high at 4.5%, and redundancies rose to their highest level since 2009, reports the BBC. As restrictions continue to affect business operations and profitability, Citibank has suggested that the unemployment rate could hit 8.5% in the first half of 2021. If unemployment does reach these levels, it will undoubtedly have a downward impact on the property sector.

3. Brexit

While Brexit may have slipped down the headlines due to the pandemic, it’s still a key issue affecting the housing market.

We’re now just months away from the end of the transition period, with new rules coming into force from January 2021. However, a Brexit trade deal and other changes, such as movement from the UK to the EU bloc, remain unclear. It’s expected that the economic impact of Brexit will have some effect on the housing market but with so much still uncertain, calculating the full extent is challenging.

It’s impossible to predict with certainty what will happen in the property market, especially as the COVID-19 situation continues to develop. But for all clients that are considering purchasing or selling a property, whether as a home or an investment, getting their finances organised is essential. It’s a step that can improve their chances of securing the property they want.