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Is the UK Housing Market Going to Crash in 2020?

Is the housing market going to crash in 2020? For many, it’s not a case of asking is the housing market going to crash, but when will the housing market crash, and what effect will this have on house prices?

There are several logical factors we can look at in order to support our critical thinking and predict possible outcomes for the future economy and housing market, and where we’ll stand as sellers and buyers as we start to adjust to the changes and prepare for the second wave of the Coronavirus pandemic that’s on the horizon. Read on to find out more about some of the factors that have had a positive and negative affect on the housing market in 2020.

As Covid-19 caused a dramatic change in life as we know it, many people have been feeling uncertain over whether they should be selling or buying their houses. According to the UK letting agent Rightmove, ‘Britain’s housing market is benefitting from a post-lockdown mini-boom supported by this month’s stamp duty cut unveiled by chancellor Rishi Sunak to “amplify the buyer surge,” pushing asking prices to a record high.’

Market leader RWinvest explains that first-time buyers don’t usually need to pay stamp duty tax if their property is worth less than £300,000. Still, now, due to the ‘stamp duty holiday,’ lasting until March 2021, first-time buyers won’t need to pay any stamp duty tax on a property worth less than £500,000. Even buy to let investors can benefit from savings thanks to this ‘stamp duty holiday,’ being able to save up to £15,000 due to tax reductions. This gives buyers more leeway when it comes to investing in property, and is sure to encourage more buy to let investment over the course of 2020.

Housing prices are at record highs even though the pandemic has had a detrimental effect on local businesses showing a significant decline in economic activity. But it hasn’t hurt asset prices just yet, which may be due to mortgage payment holidays, which have delayed repossessions, playing an integral part in protecting assets. It will no doubt play a significant role in house prices moving forward.

Some factors that generally increase house prices include low-interest rates because we tend to buy houses with mortgages, and when these rates are low, it usually drives house prices up. The demand for houses is also increasing at the moment, which could be due to the population increasing or because households are getting smaller. And finally, wage growth, which is very important when buying a house as it is a huge investment, so when wages are growing at a rapid rate, that tends to be suitable for house prices.

Some factors drive house prices down, including house supply, inflation, and low affordability. Prices may decrease because the housing supply increases due to more houses being built. Or perhaps when inflation becomes much higher, and the prices of goods and services increase, it can leave people with less disposable income to spend on a mortgage. The final factor might be if house prices are too high, then that reduces the number of people who can afford to buy them, which usually leads to a decline in house prices.

One of the most critical factors driving house prices is the rate of economic growth and the number of people who are employed, and there are some crucial points to consider here in terms of going into another recession and how this will impact the housing market. The most recent recession was the Global Financial Crisis in 2008 and 2009, where house prices fell, and usually, the longer and deeper the recession, the larger the size of the fall.

Some might say we’re already in a recession. According to the Bank of England, the cumulative loss in growth will probably last for some time, with the most significant impact being in year one, 2020, with a continued drag in year two and three which we can only presume will lower confidence and higher uncertainty, which may take some time to disappear. There may also be changes to the virus through mutation, and lockdown restrictions might be reinstated, resulting in even more long-term damage to the economy once isolation ends. The positive support policy measures may be withdrawn too soon, and let’s not forget we still have Brexit to consider and any economic problems associated with it.

In the UK so far, the unemployment rate has increased by about ten percent and will more than likely remain elevated for some time. There have been some positives in the firm policy supports from the Bank of England and the UK Government for those affected by unemployment. 1.86 million mortgage payment holidays have been issued as of May 28, 2020, and there will also be no repossessions of houses for those who can’t afford to repay their mortgage, and this will last until October 31, 2020.

Some of the factors relating to the policy supports have had both a positive and negative effect on house prices. The immediate impact of the global pandemic reduced the number of jobs and incomes, which isn’t good for house prices as unemployed people cannot be considered to have a mortgage and are unlikely to be able to buy a house.

The Bank of England is supporting households and businesses, ensuring that interest rates are low, so borrowing is cheaper, which is positive for the UK housing market. They have also made certain facilities available to allow banks to expand their lending, giving greater credit availability for those who are still able to apply for mortgages. Overall, the government ensures that the economic system is safe and stable. So people are more likely to go out and spend to continue their everyday activities, enabling the economy to recover much quicker.

So it’s not completely clear cut which way it’s going to go. Some of the factors are pushing prices up, and some of them are pushing rates down, but of all the issues mentioned, unemployment is the most important. How many people are going to keep their jobs as we come out of this Furlough period? But also, what happens to wages? Because if we have more money, then obviously we can afford to borrow more, and that tends to push up house prices. And if we do get a recession, how long is it going to last? One thing we do know for sure is that now is a great time to invest in the property market due to tax cuts, property price discounts, and expected capital growth by 2024. If you’re thinking of investing in buy to let property, now is the time to explore opportunities available to you.

United Kingdom


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