We base our assumptions on current information which may be subject to change as the situation pans out. There are many factors that can change as information changes.
Since the lockdown, we have seen a number of concerns affecting the London market:
The UK government has responded with huge support for the UK economy overall and especially for businesses. This should reduce some of Covid-19's impact and may allow for a swift recovery, depending on when the lockdown is eventually lifted and how it is lifted. Importantly, we must avoid a second wave or peak, which would force the government to lockdown again.
Most economic forecasts predict an economic downturn or contraction this year. They estimate a rebound in late 2020. This really depends on how social distancing restrictions play out in the coming months.
With regards to the housing market, we should be optimistic as this is a situation that is not systemic (for now; if we remain in lockdown for too long, it may become so). The Bank Of England reduced the base rate to 0.1% in March 2020. Forecasters are estimating that this will remain the base rate through to Q3 2021. This low base rate will encourage businesses to invest due to the cheap cost of borrowing, which in turn should stimulate the economy. This historically low base rate will provide cheaper mortgages making the case against renting ever more compelling as owning will become more financially attractive than it was pre-Covid-19.
We are reliably informed that government is looking at various options to stimulate residential purchases in order to get the property market moving once again. I will not say exactly what has been discussed because the final decisions have not been finalised, but expect some good news to make purchasing a home more attractive and compelling.
Pre-Covid-19, there was pent up demand from UK buyers. Brexit was a large reason why the public were holding off purchasing; the uncertainty over which party would govern was another reason why many put their foot on the brakes. Once the public knew who the government was, they had some degree of certainty. Brexit had been resolved, to the extent that we now know we are leaving for sure and that certainty brought the public back to market pre-Covid-19.
Once the pandemic hit and we went into lockdown, the public in the most part has walked away from purchases of property. Interestingly, people still wish to buy and are looking at the property portals in higher numbers than the same period last year. They are starting to make enquiries and readying themselves for the easing of lockdown.
I would predict that residential transactions will be affected in the next 3-4 months because of people’s ability to leave their homes again. The level and timescales of easing lockdown will depend very much on how quickly the property market will return to normal. In China, the property market has taken a couple of months to start moving significantly again. I would expect the London market to move significantly quicker than the Chinese market due to the latent demand that has been building up over the last 3-4 years and because the London market is structurally much stronger.
With many investors liquidating their positions held in the FTSE and in the global financial markets overall, I would expect some of those at least to find comfort in the London housing market. The gold bullion market has increased over 11% in the last 3 months, when investors feel insecure, they search for a safe haven in times of economic uncertainty, gold is one and I expect the London property market to be another one in the months and years to come.