Are there parallels between today’s housing market and 2007?

The Covid pandemic caused havoc in many industries, including the property sector. And everyone feared the worst when the UK housing market shut down last spring.

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However, the three months in which property transactions were put on hold only served to create pent-up demand. 

Add in the stamp duty holiday announced by Chancellor of Inquisitor Rishi Sunak in July, and everyone went house crazy. The number of sales hit levels only seen pre-Credit Crunch, and the value of properties shot up by more than seven per cent in the 12 months to November 2020. 

But what goes up must come down, right? That seems to be the line of thought with some publications, who suggest that property prices are about to bottom out and we could see a house price crash similar to 2008. 

The stamp duty holiday is on the verge of ending, there’s still uncertainty over furlough, and there’s no end to lockdown in sight. So is it time to hit the panic button? We spoke to our very own Emoov COO, Naveen Jaspal, to get the lowdown on what’s in store for the property market this year.

Is it time to panic about a house price crash? 

With over 15 years of experience in the property industry, Naveen has seen her fair share of ups and downs in the market. Referencing suggestions of a downturn in the property market, she thinks that lots of people are beginning to panic because news outlets are speculating on whether the market will or won’t crash. Adding to it , Naveen mentioned:

But we’re not seeing suggestions of house prices falling. In fact, it’s quite the opposite. Demand currently can’t meet supply, as some sellers are waiting for more certainty around furloughs and lockdowns before committing to putting their homes up for sale.

homes in bristol during golden hour

Seen it all before in the housing market 

The “wait and see” approach isn’t particularly new. In the aftermath of the Brexit vote, many vendors held tight selling their homes, waiting to see how the referendum result played out. However, when it became clear that leaving the European Union wouldn’t happen overnight, everyone got on with their daily lives, including selling homes.

Naveen sees similarities between the initial Brexit result and the current Covid climate, saying, that people react to what they see in the news, which drives the narrative. House price perception is human-made, creating the problem of a crash.

There could be some form of disruption to house prices because we don’t know current lockdown lengths and the lasting impact of furlough. Plus, it’s slightly tricker getting a mortgage if you’ve been furloughed.

However, she’s optimistic about the overall look of the market for 2021 mentioning that house prices are led by demand, and it’s currently outstripping supply and driving values up. With record numbers recently recorded, we’re unlikely to see house prices suddenly fall off a cliff.

What can we learn from the 2008 housing crash? 

Naveen is quick to point out that the current landscape is nothing like 2008, where irresponsible lending led to one of the largest housing market crashes in history. Naveen says that even during the biggest housing crash in generations, people still purchased homes and life went on.

The Covid impact is relatively short term (even if it does feel like we’ve been in lockdown forever). The property market has also performed better than many other industries, thanks to it opening up fairly soon after the first lockdown.

Historically, even in the unlikely event of a market crash, prices always come back around and surpass pre-crash levels.

Cautious optimism for house prices 

Put covid to one side, and you can see patterns about house price behaviour during a recession. This is the time where most people actually have the financial capability to move on. If, for example, you’re selling a house for upsizing reasons and place your current home on the market for £200k, a 10 per cent drop in prices would see your home sell for £20,000k less. 

However, if you’re upsizing to a £300,000 home, you’re likely to save £30,000 if prices fall by 10 per cent. It essentially means the market appeals to upsizers, a demographic that makes up a vital portion of the home-buying demographic.

Downsizers might not feel as confident in such a scenario, but people move for all sorts of reasons, whether it’s for divorce, the kids moving out or financial distress. Naveen says, “the housing market is dictated by personal motivations more than anything else.”

a row of colourful terraced houses with a blue sky behind them

Improved mortgage lending trends 

Mortgages play an integral part in the housing market, with borrowers accounting for the majority of movers. Lending was rocky last year, with lenders tightening the purse strings to safeguard themselves against Covid uncertainty. 

The tide is already changing, though, and Naveen thinks there’s reason to be optimistic about greater lending flexibility. She says, that lending was a nightmare for about six months during the first lockdown, with people only able to get 85 per cent mortgages.

When 90 per cent loan-to-value products came on the market, they were sold out in minutes due to limited supply. In 2021, banks already offer better lending options, with 90-95 per cent products coming back to the market without limits. 

This, Naveen believes,

Shows that bank confidence is returning, which is again driven by buyer demand

Finding value in the market 

Market uncertainty doesn’t mean everyone sits tight and awaits further news. Naveen suggests that buyers on the market have a fail-safe in place, opting for homes where it’s easy to add value.

Buyers can safeguard their investments by looking at the surrounding areas and seeing how properties perform before identifying what they can do to add value to the home they want to buy.

You could look for houses where small cosmetic upgrades offer quick-value increases or places that may benefit from structural upgrades further down the line, such as turning the loft space into another bedroom or converting the conservatory.

Is now a good time to sell or buy your home? 

So it all really boils down to whether now is a good time to buy or sell? And in Naveen’s opinion,“it’s either always a good time to buy or sell or never a good time to buy or sell. Everything is so dependent on your own motivations and what you want to achieve in the market more so than a few headlines trying to predict what may or may not happen.

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If you’re thinking of buying or selling right now,  contact Mashroom to find the best mortgage for your next big deal.

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