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Yesterday, news broke that, for the first time in eight years, house prices had fallen.
After years of crippling financial setbacks – from the tripling of tuition fees to travel prices soaring – it was just what millennials and Gen Zers needed to hear.
But before we crack out the champagne (or more likely Aldi prosecco – there’s an impending UK recession, after all), it’s worth considering just how noticeable these changes will be.
First, let’s get our heads around the actual statistics.
According to Nationwide, UK house prices were 0.1% lower in June than the same month a year ago – the first annual fall since December 2012.
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But James Sefton, a professor of economics at Imperial College Business School, says this number is somewhat surprising.
He tells Metro.co.uk: ‘Perhaps the surprising thing is that the fall in house prices has been no larger given the size of the economic shock on people’s income and impact of the lockdown on their ability to view properties.’
So, considering the fall was only 0.1%, what does this actually mean for those looking to buy a property?
Mike Scott, chief property analyst at Yopa estate agency, tells Metro.co.uk: ‘A fall in house prices doesn’t generally mean that more people can afford to buy a house, it just means that there are other reasons why they can’t afford to buy.’
In other words, the reasons for house prices falling – the coronavirus pandemic – is likely to be the cause other financial problems, too.
Mike adds: ‘We don’t have to look far for the reasons. Many people are no longer able to get a mortgage, especially one for a high proportion of the purchase price, or they have become unemployed, or they fear that they may soon be unemployed.
‘These factors are now what’s preventing them from being able to afford to buy, instead of price increases.’
He adds: ‘Of course, these factors don’t affect everyone equally and someone with a secure job and a large deposit may now be able to snap up a relative bargain. But many would-be first-time buyers will now be out of the market altogether until mortgage lenders regain their appetite for offering large mortgages.’
Those already with a large deposit saved may benefit from the dip in house prices – but others who are still saving (particularly first-time buyers) might struggle to get a mortgage in the current climate.
These are becoming increasingly difficult to secure, due to restrictions from lenders.
Richard Hayes, CEO and co-founder of online broker Mojo Mortgage, says: ‘Many lenders have capped loan amounts at 85%, meaning that if you’re a first time buyer, you need at least a 15% deposit to get a mortgage approved.
‘There are half the amount of mortgage products available now, in comparison to pre-covid levels, so the reality is that it’s going to be tough if you only have a 5-10% deposit.
‘The best advice in that case would be to consider waiting and saving up more to ensure your mortgage is approved, which will undoubtably take patience.’
James also points out that changes to house prices are likely to vary in different locations.
He says: ‘One consequence of the health crisis has been to both normalise working from home, and to encourage more virtual business interactions. It is possible that this trend will reduce the demand for central locations and it will be interesting to see if this does impact the growth in prices in these areas in the longer term.’
The pandemic has sparked a wave of people looking to get away from cities.
While houses in cities are currently more expensive, in future it could be there’s less of a demand for properties in places such as London and Manchester and more interest in rural spots.
As a result, this could stagnant/lower prices in cities and cause a rise in countryside properties – although, this is yet to be seen.
This is because demand drives price.
Richard points out that house prices are likely to have taken a dip at the moment because of the lack of demand over recent months.
But now, with lockdown slowly lifting, this could all change.
He says: ‘June was the first full month of trading since the property market came back to life following the lockdown.
‘Demand is definitely picking up as many buyers are coming out of enforced confinement in unsuitable property and even unsuitable relationships, to take advantage of the low interest rates in the search of a new home.
‘However, the surge in demand of people who are looking to move in the past four weeks have been unprecedented – also housing stock has been low and this, in turn, could cause prices to increase in time.
‘The second half of 2020 will be the real test for the property market, as everything is still uncertain.
‘House prices will be dependent on so many factors, such as the availability of mortgages, employment rates, consumer sentiment and economy forecasts.’
In other words, we need to wait to see if this drop in prices sustains and see what other economic factors might play a role over the coming months.
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