The Covid-19 pandemic has upended just about every industry and every aspect of our personal and professional lives. Even without being told, it was evident from the very beginning of the pandemic that it would significantly disrupt the property market. Now that we are entering the third quarter of the year, we can look back over the last nine months and quantify the damage and disruption to the property market.
The property market in London is the most valuable in the UK by quite a considerable margin. Before the birth of Covid-19, London’s property market had grown to £8.13 trillion. This figure represents 18.53% of the total value of all property in the UK. The residential property market specifically accounts for £1.5 trillion of that value.
However, Covid-19 has thrown a severe spanner into the works. Strict lockdown and social distancing measures meant that the ways people accessed the property market had to change. For several months, the entire market nearly came to a complete standstill.
What Investors Need To Know About COVID-19 And London Property
Life is slowly returning to normal. Or, at least, it is closer to normal than it has been for some time. Now that property viewings are restarting, and people are allowed to move between old properties and new ones, the market is starting to move again. Things are still a very long way from where they once were, and there is significant uncertainty that investors need to factor into their decision-making.
However, while investors should continue to be cautious about their investments in London, the market is moving again. Less experienced investors might want to hold off until there is a bit more certainty in the market. Just because you can invest in London property again, that doesn’t necessarily mean that you should.
With unemployment on the rise and more layoffs and cutbacks expected on the horizon, people from all backgrounds are holding off making significant financial investments. Whether that means putting off the purchase of a new home or postponing investment in commercial premises, there are far fewer people putting their money into London property right now.
What Has Been The Effect of COVID-19 on London Property Market?
Since March 23rd, when lockdown measures came into force, many professionals involved in the property market were forced to stop working. For example, surveyors are an integral part of the property buying and selling process. Surveyors evaluate properties on behalf of buyers and sellers. This evaluation process generally requires a surveyor to visit a property and physically assess it. This work had to stop during the lockdown.
Fortunately, surveyors managed to adapt their working practices pretty quickly. Instead of physically attending the properties they wanted to evaluate, surveyors instead began to offer ‘desktop valuations’. The surveyors calculate their desktop valuations remotely by utilising several data points. Not only have they been considering the historic value of properties, but also the current state of the local area and the expected market conditions when Covid subsides.
Covid has also forced estate agents to rethink how they approach their jobs. Before Covid’s arrival, many estate agents had already been embracing remote viewing technology to some degree. Remote viewing technology has come a long way in recent years, and buyers can now go on virtual tours of properties using a laptop or smartphone. Estate agents who already had this infrastructure in place have found it relatively simple to adjust to the new way of doing things.
The State Of The Property Market COVID-19 London
Official figures show that the UK economy, and the property market specifically, have taken a nosedive. Prices fell by nearly 2% in May. This fall in price is the largest decline the property market has seen in more than a decade. However, according to Nationwide’s chief economist, we are now seeing signs of the market stabilising. Many economists have also been quick to point out that the current situation is different from other economic downturns that we have witnessed.
Rather than allowing the economy to crumble under Covid, the UK government did what most other governments did. They put the economy on hold and introduced financial protections for both individuals and businesses.
While the pandemic has placed a tremendous emotional and professional strain on many landlords, others have managed to use this time to their advantage. Lots of landlords have a never-ending to-do list of odd jobs and other minor fixes that their properties either need or would benefit from. With a temporary freeze in taking on new tenants and making sales, a lot of landlords finally had the time to tend to some of the tasks that they had previously been putting off.
COVID-19 And London Property Prices
According to the property website Which?, the UK’s property market has now reopened in earnest. We aren’t back to the pre-Covid market by any stretch. However, property trades are now beginning to move again. Both buyers and sellers are engaging with the market just as they used to. Still, it will take several months before property prices stabilise. Until that happens, no one can say for sure what impacts Covid-19 has had or will continue to have on the markets.
As an incentive to encourage buyers to purchase property during these uncertain times, the UK government instituted a temporary cut to stamp duty. Buyers who move into a new property before April 2021 could save themselves up to £15,000 on their tax bill. Provisional data released by HMRC suggests that this measure has been somewhat successful. Property sales are still down 27% when compared to last year. However, the cut did herald a 14.5% increase in month-on-month sales.
The long-term impact of Covid-19 on property prices remains to be seen. We won’t know with absolute certainty how Covid-19 has impacted the property market until it is more or less over with. Land Registry UK maintain the House Price Index for the country. Most property businesses regard this Index as the gold standard for measuring UK house prices. According to Land Registry UK, we should have a clearer picture of the long-term impacts of Covid on the property market by 21st October.
Rightmove maintain their own property index. However, the Rightmove base their index on the asking price for homes, not the final sale price. The Rightmove property index shows a mild 0.2% drop in property prices since July.
Finally, Nationwide bank has a property price index that is based on mortgage lending prices. Nationwide’s index suggests that prices have increased by 1.7%. This figure is in line with those from another bank, Halifax. Halifax reports a 1.6% month on month increase.
How Does The Stamp Duty Cut Affect COVID-19 London Property Market
The stamp duty cut that we mentioned earlier should benefit buyers in London more than those elsewhere. In general, mid-range buyers who are seeking property in one of England’s more expensive areas, such as London, stand to benefit the most. For example, a buyer spending between £400,000 and £500,000 on a new property in London can expect to save £10,000 to £15,000 thanks to the stamp duty cut. Early indications are that this incentive is proving very tempting for new investors.
How Can The Government Support The London Property Market Post COVID-19?
The stamp duty cut has been a good start. However, it won’t be enough to kickstart the London property market in the way that most people want. Previous government advice since 26th March was to hold off on any property sales where possible. This advice was given to match the stay at home orders that were in place. Now that most of the nation is no longer under these orders, property viewings and sales can pick up again without exposing everyone to too much risk.
COVID-19 And Property Prices in London When The Pandemic Is Over
There is little doubt that the property market in London will finish the year in a weaker position to where it began. However, there is some debate about whether prices will rebound instantly or whether the process might be a long one. For example, Zoopla is projecting a price increase of 2-3% at the beginning of 2021 as pent-up demand can finally be satisfied. On the other hand, a Reuters poll of property experts showed that most are anticipating further price drops.
Is Buying Property in London COVID-19 A Good Idea?
Unfortunately, there isn’t a simple answer to this question. Whether you should be buying now will depend on your circumstances and the offer that is on the table. You certainly shouldn’t be avoiding making any trades solely due to Covid. Some investors are holding off because they are expecting more favourable conditions when the pandemic subsides. However, the reality is that no one knows with any certainty what the future holds.
Despite being several months into the pandemic, a lot of the long-term effects remain unclear. Buyers should be aware that dramatic fluctuations in the value of a property that they buy right now are possible. These fluctuations could work in your favour, or they might not. Investors purchasing a property in London should be more cautious than usual but should not be deterred entirely.