Safe as houses or house of cards? Are bricks and mortar still a solid bet or will house prices tumble? Here’s what to consider.
What’s happened to house prices during the pandemic?
Average house prices have actually risen steadily throughout the coronavirus pandemic and are even up year on year.
The UK House Price Index, which collates comprehensive national data, shows that in May 2020 the average house cost £235,673. That’s a 2.9% increase on May 2019 and a marginal rise month on month.
The Yorkshire and Humber region enjoyed a 4.9% uplift in house prices in the year to May 2020 – the fastest growth of any region in the UK.
Increasing house prices might seem anomalous in the current stop-start economy, but they’re simply following trends of previous years. In 2017, average house prices grew by just over 2% between January and May. In 2018, they rose over 1% in the same time. Growth was a minuscule 0.33% in 2019 and in 2020, house prices increased by 1.22% across those first five months. In this context, 2020 is less of an aberration than 2019 despite the pandemic.
How have rents been affected?
Despite the media frenzy surrounding ‘plunging’ rental prices, the news for landlords and potential investors isn’t all doom and gloom.
Figures from HomeLet, the UK’s largest tenant referencing agency, show that while there has been a dip, it’s been followed by bounce back. Rents for new tenancies in August have risen across the country. The average now stands at £985 per month (£825 excluding London). Based on HomeLet’s data, the rental market is enjoying better outcomes than in pre-pandemic times and rents are up 2.9% year on year.
One of the few places where rental income has struggled to perform is London, where the average rent has fallen by 2.1% year on year but did rise month on month in August. Only time is likely to tell what the bigger picture for the capital will be.
And despite rent increases, demand for tenancies is also significantly on the up across the country according to Arla Propertymark, the regulatory body for letting agents.
What does history tell us about house prices?
There have been two house price slumps in recent history. The first was the boom and bust of the late 80s and early 90s, where average prices fell by over 12% from a 1989 high of £60,701 down to a 1992 low of £53,213 according to the UK House Price Index. It took around seven years for property prices to climb back up to 1989 levels.
Then, of course, there was the 2008 recession, where house prices took a serious tumble. In the year to January 2009, average property prices shrunk by more than 15%, taking about six years to climb back up to 2008 prices.
What does the future hold for house prices?
Although the UK House Price Index hasn’t captured figures beyond May (thanks to coronavirus), the Nationwide House Price Index has. This varies slightly from the national measurement in that it’s based on mortgage approvals rather than completed sales. Nevertheless, it’s a valuable guide.
According to Nationwide, house prices fell slightly (-1.6%) month on month from May to June 2020. House prices then rose 1.8% in July and by a further 2% in August. Plus, let’s not forget that there’s a Stamp Duty holiday until March 2021, which is likely to keep the wheels turning.
For the short term then, the early indication is that there’s a good chance house prices will carry on their upwards trajectory.
So, will a coronavirus second wave kill house price growth?
Well, that’s the million-pound question – and there’s no easy answer.
Historically, the events of the 90s and 00s could be viewed as the inevitable results of natural economic cycles and financial management. By contrast, the situation we find ourselves in has been driven by an international health disaster that no-one could have predicted.
The current surge in house prices, tenancies and rents is simply the continuation (of sorts) of the housing market we’re familiar with – rising prices and increasing rents.
The bottom line is that demand for quality housing outstrips supply. That fundamental fact hasn’t changed. Coronavirus simply pressed the pause button and now that we’re back in play, the market is gorging itself on what it’s been denied.
If a devastating second wave does come, it will undoubtedly mean another housing hiatus. However, coronavirus is unlikely to kill off long-term house price growth all by itself. What we’re more likely to see is (hopefully) a levelling out of prices across the country as people reassess and take stock of their priorities (why commute when you have Wi-Fi?).
Of course, the real killer is yet to come. Brexit’s back (not that it ever went away), which means all bets are off.
Compare stocks and shares ISAs
If you’re planning to open a stocks and shares ISA, choosing the right platform is important. To help you narrow down the choices, we’ve created a list of the top stocks and shares ISAs.
Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.