Now that the Office for National Statistics has confirmed that the UK is in a recession for the first time in 11 years, we consider what effect it will have on the future of the property market.
Coronavirus and the recent lockdown caused significant financial upset, with GDP shrinking by 20.4% in three months. Chancellor Rishi Sunak admitted “the hard times are here” and many of you are probably wondering what this means for you, your property, and the property market in general.
Let us help.
What is a recession?
A recession in the UK is usually when GDP falls in two consecutive quarters. Because the economy shrank by 2.2% between January and March and, again by 20.4% between April and June, we are now in a recession.
How does a recession usually affect house prices?
What history tells us is that house prices tend to fall when the economy shrinks; recessions lead to job and income losses and there are subsequently less people looking to invest in something as expensive as a new home. Although this can cause issues for sellers, lower prices often offer an easier route to get on the property ladder – especially for first-time buyers.
How is this recession different?
Our government made the decision to shut down large sections of the economy, so a fall in GDP was expected. Now that lockdown restrictions are slowly being eased there is hope the housing market will rebound as it has done elsewhere. As yet, there is little sign that the UK housing market is about to subside.
In fact, we’re seeing:
High buyer and renter demand
Applicant demand has picked up, already surpassing pre-COVID levels. According to our friends at Rightmove, there were 40% more renters and 66% more active buyers looking for homes this July compared to July last year.
Record asking prices
The average asking price of property coming to market in Britain also hit a record this month, 2.4% (+£7,640) higher than in March pre-lockdown. Year-on-year buyer enquiries are also up 75% since the start of July. According to Rightmove research, 44% of new listings that came up for sale in in May have already been marked as sale agreed, compared to just 34% for the equivalent dates last year. The market is still moving.
Stamp Duty savings
On the 8th of July, Chancellor of the Exchequer, Rishi Sunak announced that anyone looking to purchase a main home under £500,000 will pay absolutely nothing in stamp duty tax. This announcement has certainly helped buyer demand continue its upwards trajectory.
What’s going to happen next?
NIESR, the economic research institute, has predicted that the UK economy will recover strongly in the current quarter. Dr Kemar Whyte, NIESR’s senior economist, stated:
“The monthly estimate for June suggests a rebound of 8.7%, reflecting further easing of COVID-19 lockdown measures…”
NIESR have estimated growth of around 15% in July through to September, which would mean that the UK would rebound out of recession by the end of the year.
Recessions are normal and inevitable but, we know that, understandably, they make homebuyers and sellers cautious. We understand that the job market has becomes less stable, and lending standards may become tighter, but we are hopeful that our property market will weather any economic storms that come its way – as it has done many times before.