At this moment in the property sector, there needs to be an informed understanding of how the virus could impact house prices, lenders, and overall investment into bricks and mortar.
A key question is whether the current rate of house price growth can be maintained, or if the gains made in the opening months of 2020 will eventually be reversed. Personally, I believe there is reason to be positive that prices will hold strong.
Historically, real estate has been deemed a safe haven asset. This is because in times of market turbulence, real estate is able to hold its value, recover quickly from volatile conditions, and deliver competitive returns when compared to the capital growth on offer from other assets.
Looking to the past to predict the future
One way of anticipating how the property market will react to the fallout of Covid-19 is by assessing the performance of real estate when faced with similar circumstances, such as an economic recession.
- Masthaven launches new broker portal offering instant DIPs for bridging
- Industry reaction: BoE cuts interest rate in response to coronavirus
- MFS cuts bridging loan rates in response to potential market slowdown
The global financial crisis from 2007 is a helpful example. In its immediate aftermath, prices dipped and banks adhered to stringent lending measures to minimise their risk. This paved the way for the rise of the alternative finance industry—non-traditional lenders filled the void by offering bespoke specialist loans to businesses and investors in need of access to capital.
When looking at the recovery of the property market, by March 2017—a decade on—house prices had increased by 18%.
Of particular note was the recovery of the London market where, according to the Savills Repeat Sales Index, house prices increased, on average, by 78% during the same 10-year window.
There are interesting parallels that can be drawn from the financial crash and the Covid-19 pandemic. If house prices do drop, experts are predicting that they are likely to recover over the medium-to-long-term, posting impressive rates of capital growth thereafter.
Of course, the crash was an economic crisis, whereas Covid-19 is a health issue that is having different economic ramifications. This means that the property market could recover quicker once the virus has been contained.
Supporting the needs of brokers and borrowers
One area that does seem to mirror the situation 13 years ago is that banks are likely to become more risk averse in this low-interest rate environment. As such, now is the time for bridging lenders to once again take the lead and provide the capital needed for homebuyers and investors to complete on current and future transactions.
We have access to immediate credit lines and have put into place new processes to ensure our loans are still being delivered to the highest professional standard. Importantly, we are stepping into complete loans when other lenders pull out.
As a result, we will continue to work efficiently to ensure that no property purchase is halted due to factors outside anyone’s control.