Property markets have soared, but a tough few months is yet to come

Idealism meets reality

The soaring demand reported by Zoopla and Rightmove is based on buyer inquiries and should be treated with some caution. People want to move, but can they? Many banks have shut up shop to first-time buyers with low deposits, forcing them to use the government-backed Help to Buy programme before it is tapered next April with regional price caps.

Research published by analyst Defaqto showed that there just 28 deals are available to buyers with a 5pc or 10pc deposit, after banks have withdrew loans over fears customers could fall into negative equity. But with record low interest rates, some lenders are very keen to offer mortgages – as long as you have enough of a deposit.

This has triggered a big impact on the type of people buying. Analysis by Savills of industry data from trade body UK Finance suggests that existing homeowners and cash buyers are the ones moving, not first-time buyers or buy-to-let investors. This will only be amplified in coming months as job losses mount and lenders seek out the lowest-risk customers.

The dreams of a post-lockdown escape are meeting the reality of the mortgage market, and the pandemic has served to widen the divide between the haves and have nots.

The pain begins in autumn

Tax-payer funded furlough, mortgage holidays and a ban on evictions have so far masked the looming economic reality. But all three are due to be unwound in autumn, bringing varying degrees of disaster for the market.

Simon Rubinsohn, of the Royal Institution of Chartered Surveyors trade body, said: “The bigger risk next year…is rather than big price drops, activity flatlines.”

The real pain will instead be felt by renters and landlords. While the Government has urged banks to continue support for struggling homeowners when Covid mortgage holiday periods end and unemployment rises, tenants will face eviction if they rack up arrears and get no help paying their rent. Homeowners will be able to take advantage of low interest rates to remortgage, and stricter regulation since the financial crisis will save many from forced sales.

A fundamental shift?

The property market is currently detached from the economic reality. The new normal is this sense of uncertainty, an expectation that house prices will fall at some point this year or next, when the recession catches up once the stamp duty holiday ends and unemployment rises.

It also represents a new attitude for many buyers, in which the psychological effects of lockdown and the pandemic outweigh economic concerns. And it serves to further entrench the divide between those who can get finance – largely people who already have a stake in the market – and those who can’t.


Read part one: Central banks prop up the world after Covid – but who pays?​

Read part two: Death of office ‘exaggerated’ as commercial property landlords eye uncertain future 

Read part three: How the pandemic has radically altered the flow of money​

Read part four:  Consumers stay closer to home after a bruising year for retail

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