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Monday, August 10, 2020

Will buyers actually notice falling house prices?

Drive-through haunted house opens in Japan (Photo: Getty)

What does this price drop mean for potential buyers? (Image: Getty)

Yesterday came the news that house prices had fallen for the first time in eight years.

After years of crippling financial paralizations – from tripling school fees to rising travel prices – that was just what millennials and Gen Zers had to hear.

But before crumbling champagne (or more likely Aldi’s prosecco – after all there is an impending recession in the UK), it is worth considering how evident these changes will be.

First, let’s try to understand the real statistics.

According to Nationwide, house prices in the UK were 0.1% lower in June than the same month a year ago, the first annual drop since December 2012.

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But James Sefton, a professor of economics at Imperial College Business School, says that this number is somewhat surprising.

He says to Metro.co.uk: “Perhaps the surprising thing is that the drop in house prices has not been greater because of the size of the economic shock on people’s income and the impact of the blockade on their ability to view properties. “.

So, considering that the drop was only 0.1%, what does it actually mean for those who want to buy a property?

Mike Scott, chief real estate analyst at Yopa real estate agency, tells Metro.co.uk: ‘A drop in house prices generally doesn’t mean more people can afford to buy a house, it just means there are other reasons which they can I can’t afford to buy.

In other words, the reasons for the drop in house prices – the coronavirus pandemic – could also be the cause of other financial problems.

Mike adds: ‘We don’t have to look far on the grounds. Many people are no longer able to get a mortgage, especially one for a high percentage of the purchase price, or have become unemployed or fear they may soon be unemployed.

“These factors are what prevents them from being able to afford to buy, rather than price increases.”

He adds: “Of course, these factors do not affect everyone equally and someone with a secure job and a large deposit may now be able to conclude a relative deal. But many aspiring first-time buyers will now be completely out of business. until lenders regain their appetite for offering large mortgages.

Those who already have a large saved deposit may benefit from falling house prices, but others who are still saving (especially novice buyers) may find it difficult to get a mortgage in the current climate.

These are becoming increasingly difficult to protect, due to the restrictions of the lenders.

Richard Hayes, CEO and co-founder of the online broker Mojo Mortgage, says: ‘Many lenders have an 85% limit, which means that if you are a first-time buyer, you need at least one deposit. 15% to get an approved mortgage.

‘There are now half the amount of mortgage products available, compared to pre-covid levels, so the reality is that it will be tough if you only have a 5-10% deposit.

“If so, the best advice would be to consider waiting and saving more money to secure the mortgage approval, which will no doubt require patience.”

Illustration of a woman looking sad with moving boxes in the background

Home prices are just one thing to consider (Picture Ella Byworth for Metro.co.uk)

James also points out that changes in house prices may vary by location.

He says: ‘One of the consequences of the health crisis has been both the normalization of work from home and the encouragement of more virtual commercial interactions. It is possible that this trend will reduce the demand for central positions and it will be interesting to see if this will impact price growth in these long-term areas. “

The pandemic has triggered a wave of people trying to escape the cities.

While homes in cities are currently more expensive, there may be less demand for real estate in places like London and Manchester in the future and more interest in rural areas.

As a result, this could stagnate / lower prices in cities and cause an increase in rural properties, although this has not yet been seen.

This is because demand determines the price.

Richard points out that house prices are likely to have declined at the moment due to lack of demand in recent months.

But now, with the block slowly rising, all of that could change.

He says: ‘June has been the first full month of trading since the real estate market came back to life after the blockade.

Demand is certainly increasing as many buyers are moving out of forced confinement into unsuitable properties and even unsuitable relationships to take advantage of low interest rates in finding a new home.

‘However, the increase in demand for people who have been trying to move in the past four weeks has been unprecedented – real estate assets have also been low and this, in turn, could increase prices over time.

‘The second half of 2020 will be the real test for the real estate market, as everything is still uncertain.

“House prices will depend on many factors, such as the availability of mortgages, employment rates, consumer confidence and economic forecasts.”

In other words, we have to wait to see if this price drop continues and to see what other economic factors could play a role in the coming months.

OTHER: What will come next: house prices may drop for millennials and generation Z but long-term financial difficulties are coming

OTHER: Millennials spent twice their money in their gardens during the blockade compared to other age groups

OTHER: Everything you need to know about where and how to find a dilapidated property to buy

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