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UK property demand plunges as virus takes hold

The level of demand from UK property buyers dropped by two-fifths last week, according to research that predicts a decline of 60 per cent in the number of sales over the next three months in the wake of the coronavirus pandemic.

Research from property website Zoopla suggested a decline in transactions would deepen over the next six months, as tough restrictions on physical movement and non-essential social contact hit the housing market. However, it said the effect on house prices would be harder to predict until the economic impact and the effectiveness of government countermeasures became clearer.

Covid-19’s impact on the UK property market was “unprecedented”, Zoopla said. “The social distancing strategy has created an immediate impediment to property viewings and valuations, which are integral to the process of buying and selling a home,” it said.

To measure demand, Zoopla analyses the numbers of people browsing properties online who show proactive interest in a home by, for instance, contacting an estate agent about it. In its latest Cities Index, Zoopla said demand had fallen by 40 per cent in the seven days to Sunday March 22, compared with the previous week. 

Richard Donnell, research director at Zoopla, said: “The initial impact of external shocks is to reduce consumer confidence and put a brake on housing demand and the number of people moving home, which we can see in our latest figures. Levels of property transactions are typically more volatile than changes in house prices.”

The latest figures showed the property market shock came after two months of markedly strong growth, with price rises in January and February at the highest level for four years. Average annual house price growth was 1.6 per cent across the UK cities in the index in February, up from 1.2 per cent in the same month in 2019. 

The decisive result in the general election had given buyers and sellers confidence about re-entering the market after years of political uncertainty, but the climate turned rapidly as the impact of the virus became apparent. 

The research comes amid turbulence in the mortgage market, where lenders are wrestling with the implementation of a pledge to help borrowers affected by the pandemic with a three-month mortgage payment holiday. Bank of England base rate has also fallen to a record low 0.1 per cent, putting pressure on lenders to lower rates but tightening their margins. 

Many lenders have withdrawn their tracker mortgages to new customers as a result of the rate cut. On Wednesday, NatWest announced it would pull purchase, remortgage and buy to let trackers from Thursday both for new and existing customers seeking a product transfer. Nationwide pulled its entire tracker range for new customers last week, before introducing new trackers on Wednesday.

Barclays also withdrew a large number of its mortgage deals for those purchasing new homes on Wednesday, though some of its low-rate tracker products remain available. Together, another mortgage lender, this week pulled down the shutters on any new applications across all of its mortgages, citing high demand for service from its existing client base. West Brom halted processing of any mortgages that had not yet reached the offer stage.

Aaron Strutt, product director at broker Trinity Financial, said: “It is pretty clear that most of the lenders are struggling to work out how to pass on the base rate cuts to new borrowers so they are either pulling their tracker deals or increasing the margins.”

While many lenders told brokers they had been inundated with requests from borrowers for mortgage payment holidays, putting pressure on homeworking staff, some had pointed to problems with obtaining surveys on properties as the distancing regulations kicked in.

UK Finance, the industry body, said mortgage lenders were focused on supporting customers most affected by Covid-19, with measures including payment holidays and the suspension of repossessions.

“As such, firms are having to deploy their resources to meet this unprecedented demand, while also dealing with the impact of Covid-19 on the wellbeing of their own employees who are working tirelessly during these challenging times,” it said.

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