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Uncertain outlook for property sales

The housing market seems to be quite buoyant at the moment with Agents selling most of what they have in stock if what we are told is to be believed. An element of this is the pent up demand built up over lockdown and therefore those desperate to buy are keen to get on with it. 

A report in Property Week feels the outlook is not that great particularly for first time buyers, they report:

A fall in the value of property normally spells good news for first-time buyers. Yet according to a new report from Resolution Foundation, in the post-pandemic world of the early 2020s, cheaper houses could remain unattainable to those hoping to get a foot on the property ladder.

The think tank says plummeting incomes and rising unemployment combined with low interest rates make it “realistic” that the Office for Budget Responsibility’s most pessimistic scenario – a sharp 22% drop in house prices by Q3 2021 followed by a long and slow recovery – will come to pass.

However, because a fall in house prices triggered by the Covid-19 recession would come hand in hand with corresponding falls in income, the foundation argues that the impact on the time that the average first-time buyer needs to save for a deposit would be negligible.

In the 1990s, a typical young couple putting away 5% of their income each year could save enough for a deposit in just four years; by 2019, that figure had risen to 21 years.

Resolution Foundation says that even the OBR’s most pessimistic scenario for house prices would shave off little more than a year from this, and that even this small gain would not last.

“The Covid-19 crisis has had a big impact on the education, career prospects and incomes of young people – and unfortunately there’s no silver lining for this group when it comes to house prices,” says Lindsay Judge, principal research and policy analyst at Resolution Foundation.

Credit restrictions could also make home ownership even more unattainable, especially if banks and mortgage lenders introduce tighter lending conditions as they did during the financial crisis.

The foundation estimates that if the average first-time buyer loan-to-value ratio fell to 80% (as seen in the wake of the financial crisis), by 2024 the typical number of years required to save for a deposit would rise to 27 even if house prices fell by 22%.

First Homes scheme

In an attempt to help aspiring homeowners, earlier this month the government revealed plans for its First Homes scheme, a new for-sale affordable housing product for local first-time buyers.

Under the proposal, homes will be sold at a discount of at least 30% below market value, subject to a regional price caps of 250,000 outside London, that will apply after the discount has been applied to all initial sales.

In short, the First Homes scheme should be a boon to first-time buyers, especially combined with property price falls in the wake of the pandemic. However, falling wages and tighter lending criteria could cancel out the effects, leaving first-time buyers in an even worse position than they were before. 

Full details of the First Homes scheme are still not available as the Government desperately tries to keep the economy moving and preventing a meltdown. 

If you need to sell your house fast then contact us, we can help you move on to the next part of your life.