Coronavirus: UK house prices could take a year to recover as mortgage arrears edge higher

Tom Belger
Finance and policy reporter
The UK property market has begun to reopen. (John Giles/PA via Getty)

UK house prices are likely to be lower than pre-crisis levels for almost a year despite the reopening of the property market, according to a poll of surveyors.

It comes as separate figures show mortgage arrears edging higher, with the economic crisis leaving some homeowners struggling to pay in the early stages of the pandemic.

A survey by the Royal Institute of Chartered Surveyors (RICS) showed surveyors expected sales activity to take around nine months to recover and prices around 11 months to pre-crisis levels. 35% of members said prices could fall by up to 4%, and another 40% of members said prices could fall by more than 4%.

The vast majority said agreed sales had fallen, and a smaller majority said prices had fallen. 80% of its members had seen buyers and sellers pulling out of transactions over COVID-19 in April. The number of surveyors reporting a decline in new properties coming onto the market hit its highest level since reporting began in 1999.

READ MORE: UK property market reopens with viewings, valuations and completions allowed

Recent Bank of England figures suggest prices could fall 16%, amid one of the worst economic crises in decades. Its assumptions of economic recovery are even seen as overly optimistic by some analysts.

Lenders’ mortgage data suggests only a slight drop in prices in recent months, though the pandemic has ended the ‘Boris bounce.’ Price data is seen as less reliable than usual however, given low levels of transactions. Many recent transactions were also started before or only in the early stages of the crisis.

Mortgage holidays and the government’s job protection scheme appear to have cushioned much of the impact so far by limiting forced sales, however. UK Finance data showed only a slight rise in arrears of at least 2.5% of mortgage balances in the first three months of the year.

The number of borrowers in arrears rose 2.1%, an extra 1,500 households compared with the final three months of 2019. Banks faced pressure from the government to start offering mortgage holidays in late March, with payments now deferred for more than 1.6 million or one in seven mortgages.

Housing secretary Robert Jenrick said on Tuesday (12 May) in-person viewings and completions could resume, estate agents and show homes could open their doors, and conveyancers and removal firms could return to work.

The government’s lockdown since March had largely paralysed the market, restricting or discouraging much normal and ‘non-essential’ activity. House moves were previously banned unless “reasonably necessary.”

READ MORE: Fears for construction workers’ safety as building sites reopen

Simon Rubinsohn, chief economist at RICS, said it would be a “struggle to get confidence back” despite the government’s easing of restrictions on property market activity in England this week.

Any return to pre-crisis activity levels depended most on how the pandemic panned out, and its impact on the wider UK economy, he said.

He said “further specific interventions” were likely to be needed from government to get the market moving and encourage developers to build. The comments suggest policies announced so far, such as flexible building site working hours, deferred levies on small developers and looser planning rules, may not be enough.

RICS also called for an “unambiguous signal” from the Scottish government on whether housing market activity could go ahead in Scotland.

Scotland’s housing minister told PA his administration was “acutely aware” of the impact of restrictions on the housing market, but said curbs had to stay in place to save lives. “That means staying at home, apart from essential purposes.”

READ MORE: UK house prices drop as Bank of England analysis points to 16% decline

The UK government’s decision to encourage more property viewings and transactions was welcomed by estate agents and trade bodies for landlords and tenants. It has sparked some concerns over tenants’ safety during viewings however, and raised eyebrows when home visits by family members are still banned.

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