It was recently announced that due to the coronavirus pandemic and ensuing economic lull, that the United Kingdom has officially entered a recession. Some reports have suggested that this is, and will be, the biggest recession since records began. Although government schemes have been helping small and large businesses across the country, gross domestic product (GDP) has fallen. A recession is normally defined when the GDP of a country falls in two successive quarters. This year, towards the start of the pandemic, the UK economy fell by 2.2% between January and March, and then by 20.4% between April and June when lockdown procedures were in full force. The housing market naturally runs hand-in-hand with the economy. However, when a recession occurs it does not necessarily mean that the housing market crashes. But how exactly are experts predicting that their UK recession will affect the UK housing market?
Typically, recessions impact various services and lead to job losses, company cuts, reduced spending, increased taxes, inflation and so on. Often this causes house prices to fall, which is a good thing if you have the money and ability to purchase a new home, as property will perhaps be more affordable. However, if you are selling a home you may get less money for it than you would outside of a recession. If you are both buying and selling however this tends to balance out.
The last UK recession was in 2008 and caused by the US housing bubble bursting and the ensuing financial crash. House prices subsequently fell and recovered in 2010, however it was an unusually long recession. Carol Propper, a professor of economics at Imperial College London, spoke to BBC future stating, “The 2008 recession was about the housing market and shares, which hit disproportionately higher income groups, at present the crisis seems to be hitting very much the lower income groups; the vulnerable workers, young and less skilled.” Therefore, whether or not housing prices to drop, some groups of people are still not able to afford new housing due to a lack of income caused by the coronavirus crisis. For example, first-time buyers may not be able to access lower house prices as the coronavirus pandemic has caused many UK banks to drop their base rate making mortgages and deposits less easily obtained.
Many experts are hopeful that this recession will be different to that of 2008 as the government put in place various schemes to protect the economy in shutdowns. One scheme the UK government has implemented, is the stamp duty holiday, whereby some taxes on house buying has been lifted for a temporary period. This hopefully will encourage more people to buy houses and therefore have a knock-on effect to the UK economy. Some real estate agents have already reported that more houses are being bought in different areas, in some cases even encouraged by the need for more space as more companies allow and expect remote working.
It is still difficult to predict what exactly will happen in the UK recession, but previous recessions typically have led to house prices falling. Between April and May, house prices already fell by 1.7% according to UK bank Nationwide. However new report suggests that house prices may stay the same or even rise in some areas and the UK. Currently, Britain is actually experiencing a small boom in house purchases, perhaps due to the stamp duty holiday. According to the Financial Reporter, ‘Zoopla says demand continues to run ahead of supply, sustaining annual house price growth of 2.5%, and expects market conditions to remain stronger than last year for the rest of 2020. Its figures show that the cumulative increase in buyer demand since the start of 2020 is 34% higher than over the same period in 2019, above the 25% reported last month.’ Further, in some areas of the UK, reports have shown that house prices have risen, and buyer demand is still strong.
When the UK was placed into nationwide lockdown, the housing market slowed and suffered accordingly, but after lockdown lifted, property demand has been flourishing. Although many reports show that the increase in property sales is predominantly being seen in wealthier parts of the country. So, for those that are facing a reduced income and unemployment the affordability of both a new home and mortgage will still be out of reach.
As the recession progresses it is difficult to predict how well the housing market will do despite much optimism. Speaking to the Financial Reporter, Richard Donnell, research and insight director at Zoopla, said, “the next important milestone for the housing market comes in September when schools reopen and the UK starts to get back towards a full reopening of the economy. The ‘once in a lifetime’ re-evaluation of housing requirements on the back of the lockdown will be a counterweight to the impact of the recession on housing market activity over the rest of 2020. While demand has softened over August, we expect the current momentum in market activity to continue into 2020 Q4.”