The coronavirus lockdown has been an absolute game changer for anyone who had spent the first quarter of 2020 planning a spring or summer move.
It hasn’t just been down to the Government’s measures effectively shutting down the residential housing sector; other factors have also had a significant influence on how buyers and sellers will – or perhaps won’t – approach the business of moving now the restrictions on property transactions have been relaxed.
In just seven short weeks the face of the day-to-day business of moving house has been radically altered in several different ways.
Opinion is a little divided on the long-term impact of lockdown on house prices.
Depending on what you read, prices may flatline for a short period before recovering (Rightmove); they could tumble by 13%, shaving £30,000 off the value of the average UK property and pushing the average house price below £200,000 (Centre for Economics and Business Research); or we may see gentler fall of between 5% and 10% in prices but a steeper decline in transactions to 20-40% of the 5-year average (Savills)
And, of course, there are all sorts of different forecasts and predictions from other sources that add to the noise and uncertainty over precisely how the market will react to nearly two months of stagnation.
Additionally, the real picture will be different depending on where in the country you live. Areas that have traditionally been highly desirable may see little or no adverse impact, while others experience a more acute negative effect.
The important thing to remember, though, is that wherever you are geographically, the local impact will be broadly the same for everyone.
So, if you’re planning on moving within the same area and the pre-pandemic value of your property falls by, say, 5%, the value of the property you might buy will likely have seen a similar if not identical fall.
In this case, and all other things being equal, the real-terms effect of falling prices on your planned transaction may well be negligible.
The price factor is likely to be more significant, in terms of increasing the amount of borrowing you need, if you’re hoping to move to an identifiably more desirable area, where the value of your current home falls and that of your intended property remains static or grows.
The decision by the Bank of England to reduce the base rate to an historic low of 0.1% has means it’s now possible to borrow what you need with lower repayments than might have been the case pre-lockdown.
And depending on your specific needs and circumstances, if you choose a rate that’s fixed for 2 to 5, or even 10 years (not all lenders offer a 10-year fixed rates, and it’s not always in your best interests to tie yourself into such a long-term deal), you’ll not only benefit from a cheaper loan, you’ll also have a degree of certainty over your repayments for the same period.
That said, not all lenders will pass the benefit from the interest rate drop onto their customers, so it’s worth doing your homework here – and ideally you should work with a professional mortgage broker like Oportfolio who will have access to off-market products and deals that you won’t find on price comparison sites or through dealing with lenders direct.
Inevitably, mortgage lenders are going to be paying particular attention to the affordability criteria as they consider new applications from those planning to buy a new property, so the benefit of having your finances in good shape is as clear now as it was before the pandemic.
However, for some people hoping to secure mortgage lending it’s going to be especially tricky given the impact the lockdown measures have had on the economy and employment.
If you work in a field that’s been particularly affected by the country coming to a sudden standstill – e.g. the hospitality sector or non-essential, non-online retail – lenders may approach your application with a little more caution.
Again, working with a professional mortgage adviser is a smart move because they will be able to identify the areas in your financial circumstances that may be a cause for concern and will be able to give you advice to put you in the best possible position to have your application accepted.
Negative equity is what happens when economic factors drive house prices down to a point where you owe more on the mortgage than the property is worth.
One concern – particularly among those potential buyers who have only a small deposit to put down – may be the prospect of buying a property only for prices to crash if the economic effects of the pandemic suddenly come into play.
This is where prudence is required.
For most people, a property purchase is a moderately long-term investment. Historically, it’s been generally accepted that on average people move four times in their lifetime, bringing the average time in any given property to around 20 years.
No one really knows how the market will perform in the future, but it’s probably fair to assume that any ‘losses’ we see as a direct result of this crisis will be offset by future growth – and of course the more time you expect to stay in the property you buy, the more time you’ll have to rebuild equity.
But again, a professional mortgage adviser can advise you based on your specific circumstances and ambitions.
The bottom line is that there are plenty of opportunities in the housing market right now – but getting professional mortgage advice can give you the peace of mind of knowing you’ve considered all eventualities before you set the wheels in motion on your purchase or sale.
At Oportfolio we pride ourselves on offering highly professional and friendly advice backed by many years of experience and a thorough knowledge of the mortgage market
Please note: all information contained within this article was accurate at the time of publication.
Oportfolio Limited is an appointed representative of Primis Mortgage Network, a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority
Your property may be repossessed if you do not keep up repayments on your mortgage.
Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.
by Oliver Whitehead - 4 June 2020