How the pandemic has changed the UK property market
The biggest annual drop since 2012, but the latest anecdotal evidence suggests stable market activity.
Buyers ‘have more choice, demand more time and negotiate harder’
Housing prices are a popular topic of conversation, aren’t they? We talk about them with people we hang out with on the street, with colleagues in the office, with family and friends (they were heatedly debated by adults at a children’s party I recently attended). And we often focus on what’s happening with home prices now and what could be ahead. But it is worth looking back, especially after the last three years.
And that’s what Halifax did in a new report released this week. When Covid hit, the first fears in the early weeks were that the property market would stall. Instead, the opposite happened: the so-called “race for space” roiled the entire market and helped raise the average price of a mansion by more than £100,000 in five regions of the UK.
“The pandemic has changed the structure of the UK property market,” says Kim Kinnaird, director of mortgages at Halifax, one of the UK’s largest lenders. “And while some of these effects have faded over time, it’s important that we don’t lose sight of the huge step changes we’re seeing in average home prices.”
Since the start of the pandemic, average UK house prices have risen by 20.4%, equivalent to £48,620. That compares to a 7.8% increase, or £17,158, over the previous three years, according to Halifax.
Wales recorded the strongest house price increase of any region between January 2020 and December 2022, up 29.3% (£49,227). And in monetary terms, the South East of England saw the biggest increase, up £69,224 (21.3%).
“Above entry point”
Of course, people leaving London in search of better value for money is not a new trend. But the pandemic has accelerated this process of flattening UK house prices, although it is worth noting (as Tom Bill, Head of UK Housing Research at Knight Frank has done) that demand was initially skewed towards more picture postcards and larger real estate objects. .
“Increased demand has created a much higher entry point for larger properties across the country, and the impact is still being felt by buyers and sellers alike today even as the market as a whole is starting to slow down,” Kinnaird adds.
“Taking individual homes as an example, average prices remain about 25% higher than at the start of 2020. Even if these values fall by 10%, they will still be around £50,000 more expensive than before the pandemic.”
Sellers cut prices by almost 5%
Separate data this week show how the recent gains in house prices are now fading away as real estate is now generally a buyers’ market.
Sellers lower their asking price by an average of 4.5%, equivalent to £14,100, to make a sale. According to Zoopla, this is the biggest gap between the asking price and the achieved price in five years. This means that sellers are on average giving up a third of their house price gains during the pandemic: according to the property portal, the average UK home has risen in price by £42,000 during the pandemic.
Zoopla’s chief executive, Richard Donnell, explains: “Many homeowners are sitting on the back of the massive rise in home prices achieved in recent years and have more flexibility by accepting offers below the asking price.
“The discounts to the asking price have increased and while the discounts of 4.5% are manageable, if they increase even further, this would indicate a greater likelihood of a larger fall in home prices.”
Biggest year-on-year price drop since 2012, but sales look solid
House price indices vary, but few can shy away from monthly price halts and drops. The latest nationwide data shows values fell 0.5% in February. This is the sixth straight monthly decline, sending home prices down 3.7% from their peak in August last year. Meanwhile, house prices fell 1.1% year on year. This is the first annual decline since June 2020 and the largest annual decline since 2021.
Tom Bill of Knight Frank suggests that this figure may not tell the whole story.
“While much of the economy has moved away from the mini-budget, the hangover for the UK housing market has lingered. This has led to a discrepancy between the most recent anecdotal evidence and the latest data,” says Bill.
“While last month saw the sharpest annual decline in home prices in more than a decade, activity has been solid this year as buyers and sellers adjust to higher mortgage rates.”
Jeremy Leaf, a north London real estate agent and former chairman of RICS, adds: “These comprehensive and widely respected figures [from Nationwide] reiterate lingering concerns about interest rates and inflation, which are keeping prices in check.
“However, the market is definitely not in free fall. In the field, we are seeing more offers and delayed sales, so buyers have more choice, take longer, and negotiate harder when making offers.”