The housing market since Covid-19

April 5, 2023

After the initial doom-and-gloom headlines at the onset of the Covid-19 pandemic three years ago, a close examination of the figures reveals how strongly the housing market has performed.

The UK housing market changed nearly overnight due to the Covid-19 pandemic. As the UK went into lockdown, there was a sudden drop in activity as the market largely had to shut down. However, soon after the initial restrictions began to ease, the housing market quickly picked up pace.

Initiatives like the temporary stamp duty holiday helped spur on the property market, and the number of property transactions started to surge. Sky-high demand put upwards pressure on house prices, quickly reaching and surpassing pre-Covid levels and leading to a boom across the sector.

After spending more time at home during the lockdowns, finding the right property became a top priority for many people. The housing market started moving remarkably fast with the time between a property being put on the market and being sold dropping dramatically.

Halifax’s Mortgages Director Kim Kinnaird stated: “The pandemic transformed the shape of the UK property market, and while some of those effects have faded over time, it’s important we don’t lose sight of the huge step change seen in average house prices.”

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What was forecast to happen to the housing market?

When the UK went into the first lockdown in March 2020, the outlook for the economy was uncertain. This led to many major organisations predicting steep house price drops.

For example, the Bank of England forecasted a fall of 16% in 2020. The Centre for Economics and Business Research projected a drop of 13%, while Savills and JLL forecast a 10% and 9% decrease respectively. At the time, these negative house price predictions and doom-and-gloom dominated mainstream media.

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What actually happened over the past three years?

Instead of prices dropping in 2020, house prices actually increased by an impressive 8.5%, according to figures from the Office for National Statistics. And across the past three years, the property market has seen record-breaking house price growth.

From January 2020 to December 2022, UK house prices increased by 20.4%, equating to an increase of £48,620. This double-digit growth is compared to only 7.8% house price growth in the previous three years prior to the pandemic, amounting to a rise of £17,158. This is according to research based on the Halifax House Price Index.

The average UK house price increased from £237,895 to £286,515 between January 2020 and December 2022. These figures illustrate that it doesn’t matter what forecasts are being published in the news. What really matters is the fundamentals of supply and demand in the housing market.

Since then there have been numerous predictions of an imminent housing market crash. However, this still has not happened. In fact, there has recently been a rise in interest among buyers and investors, particularly as the mortgage market has stabilised.

While the base interest rate increased by 1.0% between October 2022 and February 2023, the cost of fixed-rate mortgages feel by 0.9%, showing mortgage rates have been dropping.

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How has buyer purchasing power been impacted?

While there was a rise in property transactions after the Covid-19 pandemic, there were still some people who delayed buying. But a steep rise in inflation has caused the purchasing power of these buyers and investors to drop significantly.

Market research from eXp UK revealed a number of major UK cities are seeing even higher rates of house price growth compared to the annual rate of inflation, which currently sits at 10.4%.

Adam Day, the head of eXp UK, commented: “Even in times of economic uncertainty and hardship, the UK property market provides a safe haven for many homeowners and it’s no wonder that so many of us aspire to own our own homes, as it’s one of the safest, long-term investments you can make.”

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What are the keys to property investment?

When it comes to property investment, it is helpful to keep an eye on house price trends, both historic and predicted as this can help you make informed decisions. But it’s key to understand the true fundamentals of property investment like supply and demand and the importance of investing for the long term.

Across the housing market, demand continues to outpace supply, including within the private rented sector. Over the past five years, demand for rental properties has surged by 57%, according to Propertymark.

While more new homes are being built, there are still not enough properties being brought forward to solve the housing shortage. Crisis and the National Housing Federation previously suggested that there should be 340,000 new homes built every year until 2031.

The government committed to building 300,000 homes per year by the mid-2020s. However, during 2020-21, there were only 216,490 net additional dwellings in England. This was 11% fewer new dwellings than in 2019-20, according to figures from the Department for Levelling Up, Housing and Communities. This illustrates how much more housing is needed.

As an asset class, UK property investment often provides one of the most reliable sources of income for property investors as the housing market has held steady through numerous external headwinds. In the past 10 years, the average property has gained approximately £116,000, showing the strength of the market.

The resilience of the sector is due to the simple fact that there is a supply and demand imbalance. While this is the case we will continue to see upward pressure on house prices and rents across the UK property market.

If you want to chat to us about your next property investment opportunity, get in touch with our team at 01625 725 779, or email us at contact@theprestburyadvisory.com.

The housing market since Covid-19

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