Government intervention expected to soften impact of COVID-19 on house prices.
House prices are not expected to change materially in the short term, particularly as a proportion of sales agreed in the last two months will continue to completion.
This is one of a number of insights revealed in the latest Zoopla UK Cities House Price Index Report.
Historical analysis shows that rapid falls in house prices are usually caused by rising unemployment, a lack of credit and higher borrowing costs. These factors increase the number of people forced to sell.
The number of forced sellers in the next few months is expected to be limited by government and lender action to support businesses and homeowners with mortgage payments.Download the full report
Richard Donnell, Director of Research and Insight at Zoopla, said: “We do not expect any immediate impact on prices.
“The outlook for house prices largely depends upon how the government’s major package of support for business and households reduces the scale of the economic impact.
“Low mortgage rates mean forbearance will remain the preferred choice for lenders, but further government support in these unique times cannot be ruled out.”
What’s the background?
Prior to the coronavirus outbreak, the UK housing market had its strongest start in four years, according to our monthly UK Cities House Price Index Report.
This was partially caused by a rebound in consumer confidence following the General Election in December 2019.
In February 2020 house prices increased by an average of 1.6% across the 20 UK cities tracked in the report, compared to an increase of 1.2% in the year before.
Since then, the coronavirus pandemic has led to a 40% decrease in housing demand (based on 16-22 March 2020) and a 60% increase in the number of sales that have fallen through.
What can we expect next?
While prices are expected to hold relatively steady in the short term, it is difficult to predict what will happen beyond that.
House prices will largely be influenced by unemployment rates. The greater the economic shock and unemployment, the greater the potential impact on house prices over the spring and summer.
Zoopla Research modelling indicates a fall in the number of sales of up to 60% over the second quarter of 2020, continuing into the third quarter. Individual spring months may see newly agreed sales down by up to 80% on last year given the shutdown of normal life and knock on impact for the market.
Top 3 takeaways
1. House prices will not change significantly in the next two months as most sales agreed before the start of the coronavirus pandemic will continue
2. Government intervention and lender action will limit the number of forced sellers in the market
3. In the long term, house prices will be largely influenced by unemployment rates