Residential Market Outlook: Week Beginning 29 June 2020
Beyond the stories of pent-up demand, the property market’s true resilience will be tested in coming months, writes Tom Bill
3 minutes to read
It is not disputed that demand for property has surged since UK markets re-opened.
What happens next is more open to debate. And I don’t mean interpreting the economic data, although it’s an important subject and one that we have explored in recent weeks.
What will also be important to understand is how this demand translates into exchanges. Irrespective of what eventually happens in the economy, the next few months will show the property market’s capacity to bounce back from the pandemic.
The number of new prospective buyers in UK markets was 45% higher than the five-year average in the week ending 20 June. The number of exchanges was 34% lower.
Other data points to a similar dip in volumes. Property transactions in May were 50% lower than the figure for the same month last year, provisional data from HMRC showed. However, this was a 16% increase on April, indicating the downwards trend has bottomed out.
Of course, the number of exchanges won’t immediately respond to the market re-opening. There is typically a delay of three months between listing and exchange.
So, the first question is whether this three-month lag will get longer against the backdrop of a country emerging from lockdown? In most cases the answer is ‘probably’.
First, the banks have a backlog of mortgage applications, which is compounded by the fact some staff are still on furlough. In addition to this logistical problem, lenders have become more cautious around higher loan-to-value lending.
The same problems of a work bottleneck and furloughed staff mean local authority searches can take longer and conveyancing solicitors are under the same sorts of pressures. Carrying out physical valuations also presents challenges.
“The hardest part of the job at present is getting deals from under offer to exchange,” said one Knight Frank agent last week.
However, it is far from every case.
Some agents report that deal times are getting shorter when you have a particularly motivated buyer and seller.
Lockdown means a number of buyers have had time to do exhaustive due diligence, which means they can now take decisions quickly. For those who have done a virtual viewing, the first time they set foot inside a property can be the equivalent of a second viewing.
The second key question is whether a material number of deals will fall through to make these pent-up demand indicators irrelevant? The answer to that particular question is: ‘Probably not’.
As one conveyancing solicitor said last week: “Once deals are in solicitors’ hands, I don’t see why more should fall through now than before lockdown. Once at the legal stage, people are pretty serious about their intentions.”
There are however, so-called Covid clauses being written into some contracts. They often involve the use of long-stop completion dates, which mean that either side can walk away penalty-free if Covid-19 affects somebody’s ability to proceed.
The clauses are a reminder that everything is not immediately about to return to normal. The property market, like many other areas of the economy, has initially rebounded in a way that has taken many by surprise.
A proper assessment of its post-pandemic resilience is ultimately a waiting game. Not unlike buying a property.