Alpa Bhakta is chief executive of Butterfield Mortgages
On May 12, the Secretary of State for Housing, Communities and Local Government Robert Jenrick announced the re-opening of England’s real estate market, after seven weeks of it being effectively on hold due to social distancing measures. Certain lockdown measures were lifted, ensuring onsite valuations and viewings could once again take place. Almost immediately, estate agents and listing websites recorded a significant spike in interest coming from prospective buyers, eager to consider a residential purchase now that restrictions had been eased.
But, does this renewed activity symbolise the beginning of a house price recovery?
A short-term drop
Let’s be realistic—a short-term dip in property prices as a consequence of COVID-19 is unavoidable. COVID-19 has brought the majority of transactions to a standstill and compelled buyers and sellers to temporarily retreat from the market. The extent of this dip, however, is far trickier to ascertain.
One only needs to look at the different projections on offer. Forecasts range from -5% to as much as -30%, thought the vast majority of these predictions generally fall between -5% to -10%. Only Lloyds and Deutsche Bank hold the more pessimistic predictions of a market retraction of more than -15%.
I personally predict that this dip will be smaller, rather than larger, as the sheer scale of the demand witnessed at the beginning of the year for UK real estate has by no means disappeared. Similar to the reaction witnessed following the 2019 general election result, buyers will return to the market when there is less uncertainty.
A long-term recovery
I am still confident that, in the long term, UK property will see a substantial growth in house prices over the next three to five years. This falls in line with the long-term market projections being offered by Savills—who predicts house prices to rise by over 15% by 2024. This house price growth path will by no means be linear. Nonetheless, it is important not to let the immediate challenges we are facing distort the bigger picture. Afterall, there is a reason why real estate has long remained a popular asset class, particularly in times of volatility.
For now, buyers, sellers and lenders will be keeping a watchful eye on the COVID-19 situation and the property market’s general response to the relaxing of lockdown measures. Should the virus be effectively contained over the coming months, there is good reason to be optimistic for the future.
This post has originally been featured in Property Wire.