Frozen UK home market leaves buyers stranded

London

JEROME Reback was planning to move into his new semi-detached home in north-west London in less than two weeks with his wife, five children and two dogs. He spent much of Friday looking for somewhere to rent and store their furniture.

With about a quarter of the world in lockdown, the order to stay at home has taken on a new dimension for one of Britain's favourite pastimes: property.

The government effectively froze the housing market last week because of Covid-19, urging transactions and mortgage offers be put on hold.

Mr Reback's problem is that he agreed to complete the sale of his existing five-bedroom home on April 6, but has not exchanged contracts on the purchase of the new one. The sellers have now decided they do not want to commit to moving because of the pandemic, he said.

"It feels anxious, stressful and difficult," said Mr Reback, 58, a management consultant. "I can't enter any contracts to purchase anything because people won't do that now."

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While people move to pricier or cheaper homes all the time, few countries hitch their economic prospects onto the real estate market like the UK. The Conservative government has made home ownership a core policy, calling it one of their "most fundamental values" in last year's election campaign.

Instead, with Prime Minister Boris Johnson himself in self-isolation after testing positive for the virus, sales volumes are headed for a cliff and more than £70 billion (S$123.5 billion) of lending commitments are outstanding.

Property values may decline as much as 10 per cent this year, according to Lucian Cook, head of residential research at broker Savills. The government is encouraging those living in a home to agree to stay put until there is clarity on when Britain will start getting back to normal.

Last week, Mr Johnson ordered all non-essential stores to close along with schools, bars and restaurants and residents to remain at home for an initial period of three weeks.

"We have talked to the mortgage lenders and we have agreed we'll look to extend those mortgages to a date at which completion can take place," Business Secretary Alok Sharma said last Friday. "People will understand that at this time they should, where it's at all possible, move their dates for completion but also their dates moving into new homes."

Interrupting the housing market shows just how disruptive the pandemic is to national life. While Italy and Spain remain the hotspots for the virus, the UK is bracing for a surge in cases. There are more than 1,200 deaths so far and nearly 20,000 confirmed cases.

The British housing market is deeply ingrained in the national psyche. Major moves make the newspaper front pages and it is a staple of dinner party conversations, while a multitude of indexes track prices in different regions.

The boom goes back to the Conservatives under Margaret Thatcher's leadership, when in 1980 her government legislated to give tenants in publicly-owned housing the right to buy their homes.

The rise in prices over the past decade meant that, on paper at least, many people made more from property price appreciation in a year than from they did from their salary.

Instead of measures to boost supply, the government pushed programmes that increased demand, benefitting existing owners.

More than a decade after the financial crisis, home ownership collapsed from traditional levels while prices soared about 94 per cent in London and 49 per cent in the UK overall from their trough in 2009 during the global financial crisis.

Banks had already been reacting to the pandemic, failing to pass on interest-rate cuts from the Bank of England, pulling tracker products or increasing their margins, said Andrew Montlake, managing director at mortgage broker Coreco.

That also helps to discourage applications while the lenders are suffering staff absences because of the virus. Barclays has withdrawn many loan-to-value mortgages of more than 60 per cent for homebuyers and landlords.

Most of the valuers that banks use before confirming a mortgage "have now been taken off the road, so mortgage cases can only get to a certain point before they are being forced to pause" Mr Montlake said. Some buyers are pulling out of deals - something that is likely to increase, he added.

Much of the outlook for the market will depend on how long the shutdown remains in place, whether there is credit tightening and a surge in unemployment when the housing market reopens, according to Niraj Shah, an economist at Bloomberg Economics.

"This is a shutdown not a crash," he said. "Recent events mean the property market is being put into an induced coma. That is likely to lead to a record drop in property transactions - not prices."

The country's mortgage-bond market has already seen some impact from the pandemic.

Top-rated securities backed by prime UK home loans now trade at an average of around 97 pence on the pound, compared with more than 100 pence at the start of the year, although few notes are currently changing hands.

In north-west London, Mr Reback said he wonders if he will have to go through a complicated review by his lender when the pandemic ends. In the meantime, he is considering renting a place for six months before starting over again with a purchase and mortgage application.

"I can't enter any contracts to purchase anything because people won't do that now," he said.

"The three sets of lawyers are having conference calls and emails about what to do," he added. "They are very confused legally about the situation." BLOOMBERG