The UK government has in effect suspended the country’s property market, stopping estate agents from marketing new homes and banning any visits to those properties already for sale, as it tries to contain the coronavirus outbreak.
Recognising that the coronavirus lockdown makes many aspects of buying and selling homes either impossible, or extremely difficult, the government has effectively hit ‘Pause’ on the whole market to ward off a house price crash.
The government has not specifically banned property transactions but is urging buyers and sellers to delay and lenders have been asked to put mortgage offers on hold. Alok Sharma the Business Secretary said, ‘People will understand that at this time they should, where it’s at all possible, move their dates for completion but also their dates moving into new homes.’ For most people, however, completion day and moving day are usually the same, unless you happen to own two or more homes.
Demand from buyers fell by 40 per cent in the week before 22 March, according to Zoopla, which also forecast an overall drop of 60 per cent in the coming quarter. However, the official ‘pausing’ of the property market should help to soften the impact on prices. Nevertheless, house prices are expected to be lower at the end of the lockdown period. First-time buyers may see this as an opportunity – sellers, maybe not.
There are still many questions for those people who are caught up in the middle of this action and here are just a few.
What happens if I’m in the middle of buying a home?
The latest guidance from the Ministry of Housing states that ‘there is no need to pull out of transactions’, but also stresses that the lockdown rules must be followed. The practical implication is that, in the vast majority of cases, the advice is simply to wait until the lockdown is over before proceeding any further.
There may be buyers who are concerned that their current mortgage offer may expire in the meantime but they can take some assurance from Sharma. The Business Secretary said that the government was encouraging mortgage lenders to extend existing mortgage offers to take account of the delay. This should mean that anyone with a valid mortgage offer will not need to renew it within the usual timeframe, provided that their material circumstances remain the same.
What happens if we’ve already exchanged contracts?
For buyers and sellers who have already exchanged contracts and set a completion date, the advice is the same: to delay if possible until the lockdown is lifted. The trade body for mortgage lenders, UK Finance, has likewise stated that providers will help customers who have already exchanged contracts to extend their mortgage offers by up to three months. But if lockdown were to go beyond this period, then it is likely that further allowances will be made to prevent the housing market from seizing up.
What if my chain has broken?
One of the unavoidable side effects of pausing the entire property market will be the breaking of many housing chains. Some homeowners are already deciding they no longer want to sell in the current circumstances, causing headaches for others in their chain – some of whom may have exchanged contracts while others in the chain have not. Against that, interest rates are at an all time low, so once the lockdown is over it is hoped that other first-time buyers will be there waiting to fill the gaps and repair some broken housing chains.
How has the lockdown affected mortgage lending?
Even before the announcement from the government, many mortgage lenders were already scaling back their lending. Barclays has stopped accepting applications with a loan-to-value (LTV) above 60 per cent, and the largest lender Lloyds (which includes Halifax and Bank of Scotland) has cut back to a similar degree. This effectively rules out most first time buyers, since few can afford deposits of 40 per cent. However, around 60 per cent of the mortgage market consists of remortgaging, and it seems likely that this area will be less severely impacted.
What is the outlook for home buyers and sellers?
The current pausing of the market has been a big setback for people hoping to buy or sell their home, but it shouldn’t necessarily be a cause for alarm. Depending on how well the UK economy weathers the coronavirus, there is every chance that the housing market will pick up almost where it left off. Meanwhile, buyers and sellers across the nation will just have to wait and see how well the economy recovers.