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The effect of Covid 19 on housing prices

Published 19th August 2022

The effect of Covid 19 on housing prices

The height of the Covid 19 pandemic brought about major house price fluctuations and dramatic price increases for commodities in general. We consider what impacted property prices, during the pandemic, where we are now and the outlook on property prices for the future. 

The Dip

From an economic perspective, price hikes were a natural phenomenon as demand significantly outweighed the supply for most consumer goods. Disruptions in the global supply chain further exacerbated the situation, and the property market was not spared. Property prices have been at their peak in the last decade, and the pandemic is the most likely culprit for many people.  

However, it is worth remembering that between 2019 and mid-2021, there was a decline in property prices owing to various pandemic-related factors.  For starters, a sharp decline in general consumer demand led to low spending levels. The world shut down and many people grappled with employment concerns, rising food, gas, and healthcare prices, consequently halting property spending and movement in the property market.  As a result, property prices fell alongside mortgage rates, and for the conveyancing solicitor, the outlook was uncertain in such unprecedented times.  As property prices fell and lockdown continued, professionals in the housing market were forced to adjust related fees as well as making adjustments to working practices.  Conveyancing fees when buying a house increased as business became scarce, even further diminishing the appetite for moving home.

Gaining Traction

The UK was one of the countries that bore the brunt of the pandemic with the economy facing the worst crisis in the last few decades. However, the economy experienced positive growth as the country emerged from the throngs of the pandemic. House prices increased to the point where the housing market was witnessing a runaway increase in property prices. Naturally, we can hold the pandemic as being overall accountable, but there are other factors that came into play, as we explain:

The Role of the Government

In an attempt to prop up the housing market post the Covid crisis, the UK government implemented the Stamp Duty holiday. This came into effect from July 2020 to June 2021. The new policy effectively removed stamp duty charges from property prices, stimulating renewed demand for property as the significant saving for those wanting to buy a property was highly enticing. This combined with people moving out of the city in the search for more space and more house for your money as working from home became essential. Conveyancing solicitors in London in particular saw positive growth in new deals as buyers took advantage of a cost saving of owning property and moving out to new locations. 

However, if history is anything to go by,  government policies can create unintended negative consequences. We can draw a few lessons from government interference in the US housing crash of 2008 where government measures to lower the cost of housing inadvertently lead to increased demand, pushing prices further upwards.  Here in the UK, the Stamp Duty holiday aimed to make property, especially domestic housing, more affordable for more people, but we have now been experiencing a sharp growth in prices across the UK. Conveyancing solicitors in Birmingham and other property havens are reaping from drastic price increases while first-time buyers continue to bear the weight of expensive property.

Housing Shortage

Aside from the Stamp Duty holiday, another factor to impact house prices is that the UK was and continues to experience a housing shortage. It would seem that demand for housing and property post the Covid 19 pandemic has gained steam. An ongoing supply shortage has kept prices at an all-time high despite the government stepping in to quell prices.

Mortgage Rates

In response to the Stamp Duty holiday, mortgage applications rose across the UK to capitalise on the “affordable” prices of housing. Conveyancing solicitors in Bristol rode on a revitalised housing market wave as more applications hit desks in multiple financing institutions. However, we are now experiencing concern about the current rise in interest rates, particularly for those on variable rate mortgages or for those whose fixed mortgage rate is coming to an end.  We are experiencing a period of increased inflation, and to help contol this, the Bank of England has moved to raise interest rates. So those with mortgages approved during the Stamp Duty holiday may experience an increase in monthly repayments should the inflation window persist.

Conclusion

The Covid 19 pandemic had far-reaching effects on the property market. Conveyancing solicitors in Liverpool, London, and other areas of the UK have experienced volatile cycles in house prices stemming from the pandemic. We can see that property prices have been affected directly by the pandemic but also more indirectly by government policies and their resultant economic impacts on supply and demand. Moving forward, various stakeholders in the property market continue to keep an eye on housing prices and interest rates as the UK soldiers on amid an inflationary cycle. 

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