How to play the pandemic property market and buy a bargain

22 June 2020, The Telegraph

By Melissa Lawford

Agents are reporting a sales surge, while analysts are forecasting imminent price falls. Is there a way to make the most of the difference?

The property market is on a rollercoaster: while agents have reported a surge of demand and deals since restrictions were lifted in England, analysts have forecast deep price falls this year.

So is there a way to take advantage of these peaks and troughs?

One way to do that is sell up now, while the market is in a frenzy, then rent while biding time as prices fall – and then snap up a bargain.

This is what Theo Taylor, 71, plans to do. He has lived in Hemel Hampstead, Hertfordshire, for 20 years with his daughter and his wife, who passed away last year. Before coronavirus hit, he was preparing to downsize to Wiltshire with his dog, Pebbles. 

“Now, I’m thinking of selling this year as planned, trousering the cash, renting in Wiltshire and then buying over the next year with the added leverage of being a cash buyer,” he said.

e is about to put his house on the market for £765,000, and intends to move west with a budget of £600,000 to £650,000. He wants to wait until he finds a home that he really wants, and then will be able to move quickly.

But he could benefit from falling house prices, too. “I think prices are going to fall,” said Mr Taylor. “The furlough scheme will end soon, and when it does I think there will be significant redundancies and business closures, and when that happens I think the property market will go down.”

Is now the best time to sell?

Buyers have rushed back into the market in England since the restrictions were lifted. Agreed sales are nearly at pre-lockdown levels and sellers are so optimistic that in May, asking prices were 1.9pc higher than in March, according to property portal Rightmove.

 

David Ruddock, of estate agents Carter Jonas, said that while pent-up demand is driving the recovery, it is not just rooted in lockdown. “It has been building since the middle of last year, long before the pandemic began,” he said. Buyers had been holding off since the June 2016 referendum to see what would happen with Brexit and were just starting to return to the market after the decisive Tory election victory brought more clarity in December. 

There is also a new group of buyers who have become dissatisfied with their homes during lockdown, said Mr Ruddock. 

But the effects of the coming recession have not yet filtered into the market. Nine million people currently have their wages supported by the government and one in seven mortgaged households are currently protected by a mortgage holiday. When these measures end in the autumn, there could be a spike in forced sellers, and a major hit to buying power.

Lenders are certainly expecting the recovery to have a short life expectancy. The building society Nationwide has forecast a 13.8pc drop in house prices and has withdrawn mortgages to buyers with less than a 15pc deposit accordingly.

The current huge level of demand and the pessimistic outlook suggest that now may be the best time to sell for some time. 

How will price falls vary across the market?

These forecasts are largely for the UK as a whole, but there will be major differences in house price changes across the country and at each stage of the property market.

The entry-level section of the market will likely be worst hit, said Mr Ruddock. First-time buyers are most likely to be affected by redundancies. They are also most reliant on the availability of lending, and mortgages for those with small deposits are scarce. The number of agreed sales at the lower end of the market is not recovering at the same rate as those of prime homes.

Meanwhile, values in rural areas are more likely to hold their value. The markets here are less vulnerable to changes that affect buy-to-let investors and overseas buyers, who are currently held back by travel restrictions and face a new stamp duty charge. Affordability here is already better than in the cities, and rural markets will benefit from new demand for homes with outdoor space.

Camilla Dell of Black Brick, a buying agency, said: “A lot of people want to move out of London now that they can work from home.” 

In the capital, “the market has already dropped,” she added. “The deals we had agreed pre-Covid have been renegotiated by about 5pc.” Large-scale new build developments will be particularly vulnerable to further falls.

When will price falls bottom out?

“Playing the market is a risky strategy, as timing the bottom of the market is something nobody can predict,” said Ms Dell. “I think we are looking at a few months.” 

Estate agents Savills and Knight Frank have both forecast that house prices will return to growth in 2021.

The housing market’s recovery will be closely tied to the UK’s economic strength. But the relationship between the two is not necessarily always one of cause and effect. Analysis by Deutsche Bank showed that during the global financial crisis, GDP started to fall in March 2008 and bottomed out in June 2009 – a gap of 15 months. Meanwhile, house price falls started earlier in September 2007 and lasted for a longer period of 18 months. 

In this case, however, GDP has fallen first, with a plunge of 20pc in April; perhaps this time around, an eventual rise in GDP could be a precursor to a house price recovery.

But even if a buyer calls the market right, they could be held up by a lack of available homes, said Ms Dell. When a market is falling, sellers are also less keen to list their properties, meaning that pickings are slim.

“It is a bit like going to the Harrods sale,” said Ms Dell. “Yes, the discounts are bigger, but is there anything you want to buy?”

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