The U.K. market has so far proven mostly resilient to the collateral impact of the coronavirus.
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The coronavirus, officially known as SARS-CoV-2, and which causes the disease COVID-19, has affected over 114,000 people and spread to over 115 countries at time of writing. It is causing considerable wariness as concerns continue to mount over the potential spread, duration and deadliness of the coronavirus and any effects it could have on global economies.
But what does this mean for the U.K. property market?
The long and the short of it
It would seem that the biggest impact to have taken effect so far is on enquiries, with agents already reporting a drop in enquiry levels over the past two weeks. That said, it appears to affect only a specific section of the housing market as it applies predominantly to the international buyer and luxury markets in Prime Central London, with a decline in interest from foreign buyers unwilling to make the journey.
Tomer Aboody, Director of Property Lender MT Finance, warns that despite the strong start to 2020, the coronavirus is a threat, adding “with the possible pandemic of the coronavirus hitting the financial markets, this could have an impact on all-important property confidence.”
Yet so far, the U.K. market has proven mostly resilient to the collateral impact of the coronavirus. Research conducted by the London-based estate agency Benham & Reeves found that on the whole buyers and sellers are returning to the market in confidence, with 83% of those surveyed responding that they intend to continue with planned home sales or purchases this year despite the virus.
It would seem that after several years of uncertainty over Brexit, and the recent election, buyers and sellers are refusing to put on hold their plans any further. This confidence looks set to continue as 69% of those surveyed responded that even if the coronavirus does become more widespread, they would not allow it to disrupt their plans.
Short-term outlook: Weathering the storm
As one might expect, caution will likely increase in the short-term as the impact of the virus is felt in various sectors. At the start of this week property shares dropped up to 12% as investors expressed trepidation over the spread of coronavirus.
But although it is certain that there will be a degree of decline in viewings and enquires whilst the coronavirus threat remains present, the research from Benham & Reeves suggest that consumer confidence will prove resilient, at least for the time being.
The estate agency Chestertons has also commented that there had been no sign of any slowdown because of the coronavirus – reporting that in the first two months of 2020, viewings were up 56% and portal enquiries up 57%.
And whilst some expect mortgages to take a dip, it’s worth noting that there has been a particularly strong resurgence in mortgage applications, which increased to 70,900 in January – the highest figure since February 2016. It would be hard to imagine that those with an approved ‘license to buy’ would not go ahead with their purchasing plans.
That said, mortgage repayments are possibly at risk from individuals whose finances are affected by the coronavirus. They’re not alone in this struggle however, and the U.K. finance industry has support measures in place that should help to ease repayment stress.
Long-term outlook: Markets are resilient to outbreaks
Driven by sentiment, it’s not surprising that the markets have already taken a hit – last week major stock markets suffered their worst weekly result since the 2008 financial crisis. And the Organisation for Economic Cooperation and Development (OECD) has reduced their global economic growth forecast for 2020 to 2.4%, down from 2.9% last November.
And yet, there is a definite chance for a positive turnaround with the OECD forecasting that the global economy could recover to 3.3% in 2021 if the outbreak peaks within Q1 in China and is contained elsewhere.
History has certainly shown that while markets do take a fall during an outbreak, they are usually resilient and bounce back relatively quickly once the issue is resolved.
Looking at past outbreaks as an example of market recovery, the most recent outbreak to significantly affect the U.K. was the H1N1 pandemic, otherwise known as swine flu, which arrived in the U.K. in April 2009.
Along with the humanitarian cost, the outbreak was economically impactful, with particular emphasis on fewer approved mortgages and reduced construction activity. Nevertheless, between March 2009 and March 2010 house prices increased 10.1%, rising to 15.6% in London.
At the end of 2009 when house prices for the year had increased 5.9%, Nationwide suggested that this was the result of cash-rich buyers returning to the market and low interest rates limiting the number if distressed sales.
The U.S. Federal Reserve on March 2 dropped interest rates by half a percentage point to a range of 1% to 1.25% because of concerns over the coronavirus’ possible impact on the economy. Whilst unconfirmed on this side of the pond, it is increasingly anticipated that the Bank of England will cut interest rates soon to support the economy.
If we follow previous economic trends, this should support stable house prices even if there is reduced demand – which I’m not convinced there will be. Backed-up confidence because of Brexit and pent up demand surged into the economy in January, and it’s not likely to suddenly freeze because of a virus, unless the situation worsens drastically.
Could tech help to bridge the isolation gap?
As expanded self-isolation increases in probability, it’s likely to impact how house buying and selling functions. In the case of viewings, buyers and agents could be more reluctant to meet face to face, whilst agencies may be unable to operate out of their offices if they’re forced to adopt an isolation policy. Hence it’s more essential than ever that every agency has a business continuity plan in place if their agents have to work from home. Which is where technology enters the story.
Technology, especially in the property industry, has come a long way since the swine flu outbreak 10 years ago. And so too have consumers’ engagement habits. As the head of a PropTech company I’m constantly seeing new solutions designed to save customers time. In the current climate, it could well save the transaction too.
Some agencies are reporting that international clients are cancelling viewings in favour of video tours as coronavirus fears take hold, showing that business doesn’t have to cease completely.
Another option is Virtual Viewings, such as those used at agency Strutt & Parker, allowing buyers to view a 3D mapped, and controllable, walkthrough of a property 24/7, from the comfort of their own home.
These options might not beat the experience of an in-person, live viewing, but they’re viable options to keep the wheels of the housing market well-oiled in the interim. We’re a mobile, technology-enhanced society and can and should be using all of the tools at our disposal to carry on as capably normal until the worst blows over.
Keep calm and carry on
There’s a lot of unpredictability with the coronavirus, and there’s a likelihood that it could get worse in the U.K. before it gets better. However, in China the outbreak may have passed its peak as the country this week reported its lowest number of new infections since it started reporting in January. And South Korea, the country with the third-highest number of cases (at time of writing), is also hopeful that the worst has passed.
It would seem that the fear of the virus is creating such disproportionate behaviour that it is fear and the fallout thereof that we need to fear the most. And guard against as best we can. Because if there is one thing we’ve seen a number of times over, especially post-Brexit, it’s that the market will stabilise eventually. If ever there was a time to draw on our nation’s commendable ability to keep calm in the face of adversity, this would be it.