In the midst of the Covid pandemic that is still sweeping the nation, the property market has excelled. Those expecting a ‘boom and bust crash’ may well be disappointed over the coming months and year as we predict a robust and solid market throughout the Covid recovery period writes Tom Smith, the Senior acting Partner at Alexanders.
As with all commercial markets of course there was a great deal of worry and concern that a housing market failure was on the cards at the start of Lockdown 1.0 in April 2020.
However, a perfect storm created a brilliant backdrop for our market to positively perform and exceed the expectations of the press, and most importantly majority of the public. With the stamp duty incentive now being wound down by the Chancellor and the reality of the furlough scheme ending, many are once again worried by the looming dread of negative house prices. Below are my most prevalent thoughts on the matter and why you can be confident and don’t need to worry!
Natural Growth
2017-2019 saw increasing concern about the impact of Brexit on the local housing market, and therefore natural growth (that we expect at 4-5% compounded) was stunted over these years. Now that the Brexit deal has largely concluded and we haven’t sailed off into financial abyss, the market needs to catch up and it has done so remarkably quickly and easily.
Inaccurate Growth Figures
Despite the press recording record growth that could lead to a ‘boom and bust’ situation, the reality seems very different. In most market sectors that we operate in growth has been steady, sustainable and robust. However, the amount of new build properties selling for record premiums has skewed growth figures across the East and West Midlands to a level that would be considered by many as ‘unsustainable’.
Buyers should expect to pay a premium of circa 10% for a new build home. There are benefits such as warranty, low energy bills and zero maintenance which negate the extra cost, but the sheer quantity of new build across the East Midlands has led to some lenders and press outlets reporting 10-12% growth in prices in 12 months (after a 4% drop in lockdown 1.0). It is absolutely likely that the wider growth figures factor in the amount of ‘affordable’ new build properties on medium to large developments that serve as an ‘easy fix’ for busy, hard working or risk averse buyers.
Supply and Demand
Whether we like it or not, the United Kingdom and more specifically the East Midlands has a huge deficit of housing stock when compared with the general population size. Simply a matter of supply vs demand is likely to keep pressure on our local councils, wider government, lenders and home builders for years to come as the population increases further still year on year. This pressure will ensure that prices remain stable in the medium term.
Record Low Interest Rates
Record low interest rates have changed the financial landscape for later generations. Now it is more prudent to borrow and invest than save, and where better to invest financially than in your family's home? We have seen huge numbers of buyers with this goal and reasoning after being ‘couped up’ in a home unsuitable for their needs for too long. Covid has changed the perspective for many, and with a precedent now set for future pandemics now is the right time to expand the family home for a more comfortable way of life, and at the same time rejig your personal investment with a view to retirement.
Government and Bank Intervention
Having witnessed the aftermath of the global recession in 2008, steps taken since and in recent times by the central bank and government would indicate that the authorities and powers that be will not allow another ‘market crash’. Steady house price growth is the key to a stable and successful economy and a happy population. The government are also heavily invested in the local market through years of the successful ‘Help to Buy’ scheme.
So why is now a good time to move?
My hands on experience over the past 12 months tells me that a lot of families have been living in a home unsuitable for their needs. The worry of ‘Covid 24’ has undoubtedly been playing on buyers’ minds with a precedent set for being locked down in future pandemics in a property that isn't compatible for their work/life balance.
With a strong and robust market that is controlled by the public and their actions we are all in this together to a certain extent, and now is undoubtedly a great time to take advantage of predicted steady growth vs record and sustainably low borrowing rates in coming years. Some mortgage rates at time of press are as low as 1.12%, making the forever home more affordable on a monthly basis than many new car lease arrangements!
To all of our clients and buyers that we have had the privilege of serving over the pandemic we wish you the best of happiness and luck in your new adventures. We look forward to a continuation of the Midlands property market that we all love and enjoy being a part of so much and look forward to advising the next wave of sellers in the coming weeks and months.
