Pent-up demand to help fire bounce back in home sales
The residential property market is experiencing pent-up demand
Housing experts expect the market to bounce back when the lockdown is lifted because of an ongoing supply shortage underpinned by record low interest rates.
Scottish Building Society Chief Executive Paul Denton today forecast two waves of bounce bank, with the expectation of a return to pre-Covid 19 levels.
The sector has been hit by Government stay-at-home measures for agents, surveyors and prospective buyers, combined with a backlog in applications caused by the closure of the Land Registers of Scotland.
However, the lifting of restrictions are likely to be accompanied by a surge in enquiries resulting from pent-up demand.
Mr Denton said: “We are starting to see signs that buyers are now thinking about life after the Covid-19 peak, with a rise in inquiries on purchase mortgages. And indeed, our staff are busy processing remortgages, even for those on a mortgage holiday.
Mortgage technology provider Twenty7Tech normally sees the ratio of purchase mortgages to remortgages at 55% to 45%.
Paul Denton: ‘there will be two waves of bounceback’
“During Covid-19 we have seen that fall to as low as 20:80,” said Mr Denton. “Now we are seeing that figure edge up to around 30:70, nothing like before, but an indication of growing confidence.”
Mr Denton, who represents Scotland on UK Finance’s Mortgages Board, said: “I think there will be two waves of bounceback. The first, when Registers of Scotland fully reopens and starts clearing the backlog of applications from solicitors. And the second when social isolation measures ease and consumer confidence starts to grow.
“It is clear that the drop in sales volume is driven by social isolation and not a lack of demand from customers.
“Scotland weathered the storm during the 2008 financial crisis. We know this is on a different scale, but the underlying market is resilient and that latent customer demand will see the market bounce back to something near the levels we saw at the beginning of the year.”
The average price of a property in Scotland in February 2020 was £150,524 – a year-on-year increase of 2.5%, according to statistics from the UK House Price Index released today (Wednesday). The UK average house price was £230,332 – up 1.1%.
The largest decrease was recorded in City of Aberdeen, where the average price fell by 3.6%to £143,990. The highest-priced area was City of Edinburgh, where the average price of a house is £270,864.
The performance of the property market in February, pre-lockdown, is frankly irrelevant– David Westgate, Andrews Property Group
Across the UK mortgage approvals for house purchases rose to a six-year high in February and prices firmed markedly on most measures, even though official figures show annual house price inflation fell back to 1.1% after climbing to an eight-month high of 1.5% in January.
However, it is broadly accepted that data pre-Covid is of limited significance. David Westgate, group chief executive at Andrews Property Group, said: “The performance of the property market in February, pre-lockdown, is frankly irrelevant given the events of the past two months.
“We went from a mini-boom after the General Election, which saw people making property-related decisions they had put off for three years, to the biggest black swan event in this country’s history.
“The property market, like much of the economy, has been frozen in time in an effort to limit the spread of Covid-19.
“When the property market is switched back on by the Government – and it is likely to be included in the first wave – the initial focus will be to complete on the hundreds of thousands of transactions that have been put on ice.
“The hope is that the Government’s unprecedented action to support the economy, coupled with interest rates being cut to a record low, will cushion the property market against the full impact of the lockdown.
“If it manages that, we could even see a surge in pent-up demand as people returning to their jobs are finally free to get on with their lives.”
He had a warning against those trying to take advantage of the crisis to negotiate lower prices.
“Buyers should not expect prices to move in their favour when the market is turned back on,” he said.
“Gazunderers and anyone trying to renegotiate offers made pre-lockdown will receive short shrift from sellers, who will be acutely aware that the Government’s drastic support measures have kept many people in their jobs. It goes without saying that the ongoing supply deficit will also continue to support values.”
He said there were expectations, at least in England, of the government extending the Help to Buy scheme and possibly a temporary stamp duty holiday.
“Like most sectors, the property market will be on uncertain ground in the months ahead but what we do know for certain is that it has always bounced back from whatever the economy has thrown at it.
The housing market looks unlikely to return to the levels seen at the start of 2020 for some time– Howard Archer, EY Item Club
“We expect it to be the first quarter of next year before the property market finally gets into its stride again and picks up the momentum it found after the 2019 General Election.
“Transactions will understandably be at lower levels during the remainder of 2020 as households and the economy recalibrate to the new normal.”
Howard Archer, chief economic adviser to the EY ITEM Club, said: “Once lockdown restrictions start to be lifted, housing market activity should progressively pick up.
“Even so, given the impact on the economy, the anticipated rise in unemployment and the impact on many people’s incomes, the housing market looks unlikely to return to the levels seen at the start of 2020 for some time.”