Late last month I took part in an insightful Mortgage Market Alliance (MMA) podcast, ostensibly to talk about the situation around high LTV product supply, but which actually covered off a number of topics, not least how the market was doing and what we might anticipate the rest of 2020 will bring.
Of course, it’s incredibly difficult to gaze into a crystal ball especially when there are so many unknowns about the pandemic, particularly how future local lockdowns might play out, whether we might be subject to a concerted second wave, and just how our economy is going to fare when we’re all trying to navigate the best route through Covid-19.
During the podcast however, I suggested that a large part of how the housing/mortgage market would continue to function would be based on the recession the country would go through. At the time, technically at least, that recession had not been confirmed although it wouldn’t take a genius to work out that it was only a matter of time.
Earlier this month, that recession was confirmed with UK GDP dropping for two consecutive quarters. You can’t hide from the fact that this recession is severe – a quarter-on-quarter fall of 20.4% for April-June, and while it might be the first time the country has been in recession since 2009, the UK has not seen such a sharp drop in such a short space of time ever before.
‘Record-breaking’ is often a term used to describe a positive change but that really can’t be claimed here. The Chancellor, Rishi Sunak, called it “unprecedented” and he had every right to do so, plus as he also pointed out, there is no set-in-stone “playbook” that you can utilise in order to chart a course towards recovery.
And that will be the major focus now – the recovery. How will the UK recover? How long will it take, not just to get GDP back into positive territory, but to reclaim all the lost growth? The early signs do look promising – for instance, on a month-by-month basis June’s GDP was up a further 8.7%, after growth of 1.8% in May, but that was still a sixth below what it was in February, so you can see the scale of the drop.
Plus, have we truly seen the full extent of what could happen? What will be the overall impact for individuals in terms of their jobs, their income levels, and their ability to keep paying their mortgage or rent, or other bills? The furlough scheme remains in place, albeit at reduced levels; job losses appear to be stacking up; and many borrowers are still on mortgage payment holidays, or completely reliant on further Government support.
It is those key questions which still need answering and which will ultimately determine what kind of recovery we get and the time it takes to get there. And, of course, the housing/mortgage markets will be impacted by this – just how severely is, again, anyone’s guess? But what I can say is that currently the market is positive.
Clearly, over the past few months we have benefited from the pent-up demand that had nowhere to go during lockdown, but even since then – and especially backed by measures such as the stamp duty holiday – demand has remained high, property viewings have rocketed, offers are being made and accepted quickly.
In other words, volumes are good and (rather importantly) prices are stable. I’d lost count of those who had predicted a post-lockdown house price crash during lockdown, but the fact is when you have demand exceeding supply, as in much of the UK property market, then this tends not to happen.
Economic theory is quite consistent here and, from our own valuation perspective, it’s possible to see a great deal of stability in terms of those property values our surveyors come to. That should also be seen as a positive and it’s something we, along with our lender clients, welcome, especially when there is plenty of uncertainty elsewhere.
So, at present, I think there are plenty of reasons to be cautiously optimistic, but with the significant caveat that we haven’t truly seen the full force of this recession hitting yet, and there might be a lot of impact feeding into the housing market when it does.
Simon Jackson is managing director at SDL Surveying