England Residential Property Market Update
Updated: Nov 26, 2020
Initial Data Post Market Re-opening
Since our last article one month ago, the property market has slowly opened its doors since May-12 where socially distanced viewings can take place and house moves are no longer discouraged. In this write-up, we look at the initial indications around the sales market that have emerged in the last few weeks, as well as taking a closer look at the rental market and how it will impact property investment.
Sales Market Update
There is definitely some reported “positivity” from estate agents reporting being very busy across the country, to Zoopla noting demand in sales now stands at 20% higher than the start of March. However, this is more likely to be a short release of built-up demand. Let’s not forget the property market was closed for 50 days at a time that’s usually is a very busy season, that is at least 14% — 20% of annual demand “lost” which is flowing through the market now. So an increased demand of 20% is not surprising and still falls short of making up that lost demand.
We touched on the topic of having winners and losers across the country. So far the re-opened demand certainly looks this way, with South West coastal cities like Portsmouth and Southampton seeing a 50% increased demand and London demands still fall short from 1 March levels.
When we dig a bit deeper into a more “series” metric like agreed sales volume, that is still lagging very much behind the normal activity level in March. Although there is also the usual lag between “looking for property” to “found and offering on property” to consider, Zoopla points this to be around 2 months. If the increased demand does translate to sales, we should see agreed sales being above pre-COVID level in about two months time. However, there is the possibility that this lag is longer than before, with buyers starting to look but maybe waiting longer to commit, leaving more time and chance for buyer sentiment to change.
While observing asking prices, and speaking to others active in the property market. It seems a 5% discount from a slightly motivated seller is not too hard to obtain right now.
Another interesting data point from the Zoopla monthly report is that 60% of the buyers surveyed still plan to go ahead with their plans ( it does not ask if they plan to go ahead at the same pricing level, or discounted pricing level though). This means 40% of the buyers that were in the market in March have now put their plans on hold.
Even more, interestingly, is that only 22% of the buyers said they have been unaffected by COVID-19 directly. Those affected, even if they’d like to continue their property plans, would either need a higher LTV financing level or would need to buy at a lower price point. This certainly creates more downward pricing pressure as although some banks have put back their 85% LTV products, none have introduced a higher LTV product than pre-COVID.
Also considering that in 2019, 1 in 5 buyers took a mortgage at 90% LTV or higher, which is very difficult to obtain post-COVID. It may further trim down the “success” percentage of buyer demand flowing to completed sales.
Our view remains that there is a very likely chance of a higher price drop, but we may have to wait at least another few months to see things flow through. It may be close to the end of the year before a 10% drop is acceptable to sellers.
Long term Rental Market Update
The rental market historically experiences a more muted downward pricing pressure than the sales market. In the short term, there would even be a pick up in rental activity as first-time buyers put their purchase plans on hold and stay in the rental market for longer. It also serves as a temporary stop-gap for people further up the property chain, those that have sold their properties but are now unsure about buying a bigger house. There will also be added demands from couples split post lockdown ( similarly to what happens post-Christmas holiday season).
Again what we have observed in the last few weeks, is that things vary depending on the location. While demand is experiencing a slight increase more uniformly across the country, supply in certain touristy towns has outstripped demand. As landlords move their properties from the short term let market back to the long let market, it has also increased the average rent due to short let properties are usually the nicer and more expensive ones. In cities where there was already an upward pricing pressure pre-COVID, like Bristol, remains the same post-COVID with people reporting difficulties in finding a suitable property.
As we look to the medium term, considering the weakened economic environment, falling wages and high unemployment will no doubt put household income at stress. Historically when earnings fall, rentals fall also. Perhaps more so in areas with the highest rents like London, where the rental affordability is > 10% higher than its surrounding South East.
Short term Rental Market Update
Since the lockdown restrictions have been put in place, many hotels have closed and Airbnb has been blocking the calendars of UK holiday lets until July-3rd (except for key workers) from the latest communications sent. In this environment, it was perhaps surprising that Savills reported hotel occupancy levels in London of around 20% for the week ending 20th April (based on those hotels that remain open). Serviced apartments have shown greater resilience, with daily occupancy as of the 11th April at 28.5% for the UK, 29.4% for London, with Manchester reporting 36.2%.
Even with the potential re-opening of the domestic hospitality sector on the horizon from July, some sort of social distancing is likely to be required, which favours the serviced apartment model. With the travel restrictions still in place, and companies starting to ask its employees to take some of the unspent holidays. We think the domestic serviced apartments would see a pick up in demand earlier than hotels. City dwellers cooped up in small flats would favour staying in a villa in the countryside. South West could be a popular choice as traditionally it accounts for nearly 20% of domestic holiday demand.
Feel free to get in touch further to discover more insights on UK property investment.
Sources and Further Reading:
 UK Cities House Price Index April 2020 Edition — Zoopla May 27
 Hometrack UK — Rental Market Report, Q1 2020 — Zoopla Apr 21
 UK | Covid-19: Savills UK & European hotel insights Vol 5 (as of 4th May 2020) — Savills May 4th