Covid-19 had a significant impact on the whole world. Real estate markets worldwide were affected, industries suffered huge losses, businesses shut down, and companies had to sack off hundreds of employees. Countries all around the world went under lockdown, which meant local businesses were suffering, the rate of unemployment grew, and thousands of people continued to get sick with the Covid-19 virus.
The Covid-19 pandemic greatly affected the real estate market in the UK. During the first lockdown, the UK government wholly banned any real estate activity. That meant, real estate agents had to shut down their business temporarily, moving companies and surveyors had to stop their operations. Potential buyers could no longer view property, and sellers could not put their property on the market. Even those buyers who were in between closing deals had to put a temporary pause on those deals. By the time the second and third lockdown came about, the UK government allowed real estate transactions during the lockdown. Sellers could finally list their houses on the market. Potential buyers could view property virtually, real estate agents, be it estate agents in Belsize Park or real estate agents in Manchester, could start providing their services again and things started to seem like they’re getting back on track.
However, the only silver lining to the Covid-19 pandemic was the fall in real estate prices. Due to this, the UK real estate market essentially became a buyer’s market. Due to the decrease in demand and consistent supply, the buyer had the upper hand in the real estate market. Sellers were willing to settle for valuations lower than their asking price, developers and builders started offering great deals and discounts, and buyers could buy prime property at affordable prices. Now, potential buyers, real estate investors and first-time buyers could not buy the property of their choice at relatively affordable prices due to low-interest rates and discounted prices. From a textbook perspective, a fall in the price of real estate is excellent for first-time buyers. But, is that the case? Will the continued fall in prices of real estate be a problem for first-time buyers?
Changes in the mortgage market
Due to the pandemic, banks and lenders have become very strict about approving mortgages. In this case, as the prices of real estate continue to fall, banks and lenders will become even more stringent about whom they will approve for a loan. First-time buyers usually rely on securing a suitable mortgage at a low-interest rate to buy their first-time. These are the type of buyers who spend years putting money aside to have enough for the down payment. But, as lenders and banks become strict, very few first-time buyers will actually get pre-approved for a mortgage, and even fewer will actually be given the mortgage.
Property price and the UK’s GDP
If real estate prices continue to fall, the UK’s GDP will also start to fall. Also, the prices of real estate tend to follow the trend of GDP. So, as the GDP falls, the prices of real estate will again fall, and the vicious cycle will continue. As the GDP falls, there will be a rampant increase in unemployment, followed by economic uncertainty. As the whole economy starts to suffer, the first-time buyer will lose confidence in the real estate market. Usually, first-time buyers are young professionals or young adults who are looking to start a family. Without a steady job and job security, a young professional will choose to put aside their savings for a rainy day instead of using that money as a down payment. Also, there is a fear of paying the fixed monthly mortgage without being sure of whether there will be a steady supply of income in the future.
A decrease in the supply of property
As the prices of real estate continue to fall, not too many homeowners will be willing to put their houses on the market. Of course, unless there is a dire need for money or if homeowners are making a distress sale, most will prefer to let the real estate market pick up a little before putting their properties on the market. In that case, the number of properties that will be available for sale will reduce. If this happens, the tables will turn, and the UK’s real estate market will become a seller’s market. In that case, first-time buyers will have a limited number of properties to choose from, and sellers will sell their property to the buyer who is willing to pay the maximum amount of money. So, in the long run, the fall in prices of real estate might not actually benefit the first-time buyer.