Covid-19 has certainly left its mark when it comes to all aspects of life whether it be business, social or personal. Uncertainties surround our everyday life, more so than ever before. How will this affect property prices? The real answer is… no differently to how it has always affected property prices.
My view is that the pandemic has been a typical factor that affected prices and when it comes to investment in property, it is imperative that a long-term view is taken. Short-term fluctuations exist, will continue to exist and to a certain extent, should not be considered relevant in the investment decision-making processes. This stands true for residential acquisitions as well.
To determine the effect of the pandemic on property prices, we need to look at the factors that indirectly influence property prices, such as the labour market (ending of furlough), the end of the stamp duty holiday, interest rates, availability of credit and a general urge to do something having had a hibernation period for longer than one can cope.
The Labour Market
Great Britain is currently experiencing labour shortages across industry. Ignoring factors that may have caused this, the general trend is that more work exists than the number of workers available to do the work. For those in work this means wage rises are likely to be inevitable. Although inflationary, people are more likely to have more money in their pockets and as a result are able to consider acquiring property.
End of Stamp Duty Holiday
Ordinarily, one would expect that the end of a stamp duty holiday will result in a drop in property prices through a fall in demand. This has just not happened. Why? A major cause of this has been the fact that having had an increase in working from home people sought to move out of cities and into bigger houses with garden space. The need to get decent living space at any cost has meant that factors such as Stamp Duty were merely pushed aside as irrelevant.
Availability of Credit
The availability of credit has been a key factor in determining both the demand for property and prices.
Despite the underlying expectation that interest rates will eventually ride, lenders are pushing through deals as quickly as possible, with borrowers insisting on fixed rates for an extended period of time. This inevitably results in increased demand for properties and eventually higher prices.
Long – Term View
To take a long-term view is to be more realistic. Great Britain plc has a growing population with limited space. More people means the need for more houses. Limited space means building up only. These two factors combined are the ideal recipe for term increase in property prices. In practice, the real question is one of affordability. Is this likely to suppress prices in the future? Only time will tell.
