Summary 

UK context

The number of confirmed Covid-19 cases and deaths in the UK have plateaued, with the number of new cases reaching a three-week low on 28 April, on Thursday 30 April Boris Johnson declared that the UK was past the peak. 

Mr Johnson returned to Downing Street last week to resume control of the UK government. He has committed to laying out a comprehensive plan for moving the UK out of lockdown this week. 

The UK government is around three weeks from releasing the tool it says is essential to allow the easing of the current coronavirus lockdown, Health Secretary Matt Hancock said, in a sign current restrictions could remain in place until the second half of May.

Last week Capital Economics outlined their scenarios for the UK economy depending on lengths of lockdown. Assuming a 3-month period where the severe containment measures remain in place until late June, they estimate a GDP contraction of 12% for 2020. Even with a bounce back of 10% growth in 2021 the UK will remain 4.6% below the pre-pandemic growth path for GDP in 2022.

Transactions 

The majority of housing sales agreed before lockdown are still holding together, as buyers and sellers hold their nerve. As we reported last week, only one in five transactions agreed before the lockdown are falling through. 

As newly agreed sales have fallen significantly, due to social distancing measures, we expect more than 500,000 lost sales this year, less than half of which are likely to return in 2021. 

There are however signs that people are also starting to look ahead to life after the lockdown. Waiting lists for viewings are being drawn up across the country for when government guidelines change.  

The volume of web views are also improving. In the week ending 21 March, web views for London properties were 44% below the level during the same week in 2019. By the week ending 25 April, the decline had narrowed to 12%. It was a similar story in markets outside of London, where an equivalent decline of 42% had switched to become an increase of 8% over the same period.

To understand how Knight Frank agents are thinking about life after lockdown, read our interviews with Priya Black from Knight Frank’s new homes team and with James Toogood in Bristol and Josh Marks in St John’s Wood.

Prices

We expect pricing to be impacted by the crisis in the short-term. The length of lockdown measures will be the critical issue which will dictate the severity of price falls. 

One issue which will influence price performance in different parts of the UK will be the legacy of recent price changes. 

Prime central London and parts of north-east England were the weakest-performing areas for house price growth in England and Wales over the past five years, potentially softening any impact on values from Covid-19 in these locations. 

The prime central London market saw price falls of up to 25% in some sub-markets over the past five-years. Ahead of the previous downturn, during the global financial crisis in 2008, prices have risen 74% in the preceding five years. 

Similarly in the prime country market, prices have been flat over the last five years, compared to a 22% rise over just two years in the run-up to the 2008 recession. 

We forecast UK prices to drop by 3% over the course of the year although ad hoc renegotiations of between 5% and 10% are taking place.

London rental market

Demand for rental property has picked up. In the week ending 21 March, web views for rental properties were 12% below the same point last year. By the week ending 25 April, that had turned into a 16% increase.

“In the early stages of the lockdown people froze,” said Jon Reynolds, head of lettings for the City and East region of London at Knight Frank. “That has changed as time has gone on. People now know whether they’ve been furloughed or not and some are starting to plan for life after the lockdown.”

Lettings transactions are quicker to arrange than sales, involve smaller financial commitments and are established for fixed periods of time, which means demand typically responds more swiftly to change than it does in the sales market.

Despite the fact demand has started to reawaken, the number of tenants renewing lettings contracts is rising, as people opt to stay put given economic uncertainty.

The number of tenancy renewals agreed since lockdown measures were introduced is 15% higher than the equivalent period last year and the highest figure in 10 years. The renewal agreements relate to tenancies that are due to end in May and June.

Residential development

As we reported last week, housing delivery across the UK is set to stall this year, with 38% fewer homes built in 2020 compared with 2019. Gradually, we are now starting to see firms setting out their strategies for a phased return to site construction and operating, albeit with strict social distancing protocols. In most cases, this will mean a managed slow and steady return to activity.

This, combined with a more uncertain sales environment post the end of the lock down, is likely to have a knock-on impact on housebuilder’s appetite for land and comes after a promising start to the year for land sales. December’s election result restored some certainty after months of Brexit indecision and renewed confidence had led to deal activity picking up and allowed prices to stabilise. It is something we explore in more detail here.

Undoubtedly challenges remain, but the market will have been encouraged by trading updates from some of the listed housebuilders in recent weeks. Both Taylor Wimpey and Persimmon, who are beginning phased returns to work, reported surprisingly robust private reservation numbers since the lock down started. Whilst activity has undoubtedly slowed, the news will provide encouragement with regards to the resilience of demand for new build homes.

Finance and mortgage markets

Lenders are beginning to look beyond the lockdown as they attempt to replenish their pipeline of business by reintroducing products, raising the loan-to-value ratios they will lend to, and raising the caps at which they will accept desktop and remote valuations.

There has been a notable increase in competition among the high street lenders and the number of products available to borrowers has increased for the second consecutive week by 5.9% to 8,044, according to lending technology company Mortgage Brain, albeit that's still down almost half since the onset of the crisis.

Rates remain very competitive, for example NatWest will offer a mortgage of £750,000 on a £1 million home on a two-year fixed at 1.25%, or Nationwide will offer a 1.34% tracker to the same value.

There are some signs of borrowing costs creeping up, however, as the cost of hedging against risk climbs, banks set aside provisions for bad loans, and hold rates in order to ensure they keep depositors.