What does a second lockdown mean for the UK housing market?

The performance of the UK housing market over the course of 2020 has been little short of remarkable. The first lockdown released a tide of demand for those re-evaluating their lifestyle and housing needs, the opposite of what was expected at the time. The second lockdown started on the 5th of November and will last until the 2nd of December, but this time the effect is not expected to be as great.

Last week it was announced by Nationwide that annual house price growth hit 5.8% in October, while the Bank of England recorded a 17% month on month increase in mortgage approvals for house purchases. Furthermore, data from TwentyCi shows that there have been more than 135,000 sales agreed upon in the past month, 50% higher than this time last year. There has been a major technological shift as estate agents now aim to conduct more virtual viewings, meaning that sellers and buyers are still able to progress with their plans. Furthermore, solicitors, conveyancers and mortgage lenders are all able to continue operations as usual. In the first lockdown, all but essential moves were banned and buyers were urged to postpone their purchases; as a result, around 450,000 moves were frozen; however, this time, removal firms can also carry out their work while social distancing. Fig.1 from Zoopla shows us that the number of days taken to sell a home since May 13th has reduced compared to the previous year.

Fig.1: Days taken to sell a home in the summer period since May 13th.

Transaction data shows us that the market is currently being driven by wealthy individuals looking to upsize. This means that in the short term, increased COVID-19 measures and an increase from working from home will further escalate demand for larger properties with outdoor spaces. A second lockdown could reaffirm people’s desire to move even more.

The housing market sector is exceptionally dependant on borrowing, and if unemployment continues to rise, buyers will become more cautious and lenders will be more risk averse. Unemployment spikes lead to a fall in house prices as shown in Fig.2, and unemployment is likely to see a major spike once the furlough scheme ends, meaning that the demand for property is likely to decrease. House prices will be hit hard due to many events looming on the horizon, such as the possibility of a no-deal Brexit, a potential rise in taxes and the end of the stamp duty holiday in March 2021.

Fig. 2: Unemployment spikes lead to major house price falls.

The government’s scheme to allow three-month mortgage payment holidays was due to end on the 31st of October, but this scheme will now continue. This means that homeowners can now apply for new payment breaks of up to six months without affecting their credit files. This scheme will prevent a wave of forced sellers entering the market and will therefore not lead to a fall in house prices due to increased supply. Although the mortgage scheme has been extended, it is becoming increasingly difficult for new buyers to get a mortgage. Wait times for mortgage approvals have doubled since in the past 6 months and mortgages for buyers with less than a 20% deposit are becoming increasingly hard to find.

We can expect demand for housing to continue to increase during this lockdown. Added restrictions may mean more urgency for those who want to upsize, even if a local market is suspended; last lockdown that simply meant demand built up and flooded the market when restrictions were lifted. However, if new restrictions halt activity for an extended period of time, future sales could be hit by logistical delays from the backlog and imminent end of the stamp duty holiday.

Analyst: Archit Lal

Sector Head: Theo Thomas

Editor: Harry Forbes-Nixon