New-build residential homes are pictured during construction at a housing development, stalled due to the COVID-19 pandemic, in Riseley near Reading on May 1, 2020.
U.K. house prices will fall “modestly” in the coming months, but are unlikely to drop as dramatically as in 2008, two analysts told CNBC.
The coronavirus has halted the residential property market in the U.K. after the country’s government stopped house viewings and prevented real estate agents from promoting new properties, as part of broader moves to contain the pandemic’s spread.
Though future house prices will depend on how long the outbreak lasts, analysts are confident that “very low interest rates” and supply shortages will limit their fall.
There will be “modest declines for some time, but I don’t expect a collapse (in prices),” Roger Jones, head of equities at the wealth management firm London and Capital, told CNBC last week.
He added that even if unemployment rises significantly, which would constrain people’s ability to move homes, “we aren’t going to see the (same) collapse as in the global financial crisis,” he said in a phone call.
U.K. house prices sank almost 16% in 2008 amid an international credit crunch.
Hansen Lu, property economist at Capital Economics, foresees a “modest” 4% fall in house prices this year.
He also noted some key differences between the current situation and 2008: the banking system is more resilient; there’s a lot of support from the government to help households weather the current crisis; and interest rates are very low — all these factors should support demand across the U.K.
In response to the pandemic, the Bank of England cut interest rates from 0.75% to 0.25% in early March. It then announced a second emergency cut later that month, taking interest rates to 0.1% — their lowest level ever.
“If demand comes back, we won’t see a collapse (in prices),” Lu added.
U.K. property website Rightmove said last week, based on a survey, that the lockdown has not changed people’s plans to move house, beyond a shift in timeframe.
In addition, Prime Minister Boris Johnson announced Sunday that construction activity could resume Monday, as part of an initial step to lift the lockdown measures.
Barratt Developments, a housebuilder in the U.K., said that work on its construction sites would restart from May 11, but in a “phased” way.
“We will then start a phased return to construction, with 180 sites — around 50% of the total — in the first phase,” the company said.
A new way of living?
Going forward, property experts are considering whether there will be changes in consumer behavior as a result of the pandemic.
The widespread implementation of working from home has made the house even more important to lots of people, and there are questions as to whether there will be any longer-term changes.
“Coronavirus lockdowns have reduced the incentive to live in a big city. Many of the draws of living in dense, urban areas — (such as) access to culture and entertainment — remain closed,” Lu told CNBC.
“Also, those who are able to work from home are likely to do so for many more months. This makes it harder to justify the higher rents demanded in expensive, city centre locations.”