The three key factors influencing the UK property market

The outlook for the housing market is still taking shape, but here I take a look at three market indicators to watch.

From buyer sentiment to Bank of England forecasts, higher loan-to-value [LTV] mortgages and first-time buyers, here is how these key factors will influence the market:

Mover intent

Some 60% of prospective home movers say they intend to continue with their plans despite the impact of Covid-19, according to a recent Zoopla survey. Some 22% said they were not affected by the pandemic, while the remainder said they had felt the impact, but wanted to continue with their next move regardless.

The extent to which buyers and sellers continue with their plans will also determine how many of the 373,000 sales stalled due to lockdown will go on to complete, and this will affect the level of total transactions this year.

After 50 days of market suspension, buyer demand in England after the housing market opened on 13 May rose by 88% in a week, suggesting that there will be a flurry of activity for some time.

In Wales, Scotland and Northern Ireland, demand continues to build, and it can be expected that there will be similar spikes in activity when these markets open.

It is possible that post-lockdown demand is also spurring more activity among those who had no previous plans to move as people have spent so much time in their homes over the last two months - prompting a change in view in how and where they want to live. In effect, it could have created a one-off Covid-19 bounce.

The economic outlook

The current projections from the Bank of England signal that unemployment will rise sharply and that the economic output of the UK will fall significantly. This cloudy economic picture will likely start to feed through into market sentiment in the near term.

The results of our survey showed that 40% of movers had put their plans on hold because of uncertainty over the economic outlook, concerns over the direction of house prices and confidence over their future finances.

At the same time, the government has already taken unprecedented steps to throw a fiscal ‘bridge’ across the Covid-19 dip, via the furlough scheme and business grants. The extent to which these work will become clear in time when lockdown begins to ease more fully and businesses, especially in the retail sector, start to open once more.

The housing sector is certainly better placed to weather an economic downturn than after the financial crisis however, given the stricter mortgage lending criteria and stress-tests that have been in place for the last decade. These have helped build an equity cushion in the housing sector across the country.

Availability of mortgage finance

Alongside stricter lending criteria, a wider range of higher LTV loans started coming back to the market in recent years, allowing a greater number of first-time buyers (who can pass affordability tests but who do not have access to large deposits) to climb onto the property market.

In 2015, first-time buyers accounted for 29% of mortgage loans, according to a report released last year by Zoopla and UK Finance. By 2018, this had increased to 35%.

However, as lockdown started, and the mortgage lenders turned their attention to dealing with the welcome move to mortgage holidays, new lending levels started to decline, and the range of mortgages on offer contracted.

As the market enters the next phase, first-time buyers who are keen to progress will still need access to higher LTV loans or they will have to step back from the market while they amass more equity. Alternatively, they may look to take advantage of the Help to Buy scheme on new homes.

These factors together will help determine the future path of the housing market in the months to come.

*Gráinne Gilmore is Head of Research at Zoopla