Housing market 'makes my head spin' says Phil Spencer. Are prices going up – or down?

Both property transactions and property prices are continuing to grow: so why are expert prognoses for the housing market pessimistic? Even Phil Spencer feels confused. We investigate

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Demand for property in England has surged since the lifting of Covid-19 restrictions; house prices are keeping up too, with modest but steady increases recorded across England in the past two months, and similar results expected from Scotland and Wales when restrictions are lifted there.

So, against the backdrop of a property market seemingly unperturbed by the pandemic, why are property experts sounding alarm bells about a slump in the months to come? As Phil Spencer has eloquently put it, '[t]here are so many mixed messages about the housing market it makes my head spin.'

First of all, we have to confront the dire situation with mortgages. First-time buyer mortgages (which is to say low-deposit mortgages) have pretty much disappeared from the lending market, and it is looking increasingly likely that these mortgages won't return any time soon. While lenders were originally citing the lack of available resources for processing applications, there is now more indication that they're pulling mortgages out of fear of a house price crash at the end of 2020. 

Nationwide have become the latest lender to treble their minimum deposit requirement to 15 per cent, with their mortgage director, Henry Jordan, explaining that they 'need to ensure our members can afford their repayments, while doing what we can to protect them from falling into negative equity.' In other words: lenders don't want the responsibility of a big loan that could be worth much less in six months' time.

Even Zoopla, who have been reporting house price rises and a 46 per cent increase in property transactions in May to June in comparison with pre-lockdown March, are predicting that the economic downturn post-coronavirus will begin 'to exert downward pressure on prices later in the year.' 

There clearly is a dissonance between the current mood of buyers and that of property experts. It is clear that anyone who can still get a mortgage is doing so, even though the economic outlook for late 2020 and beyond remains deeply uncertain. The Financial Times, in a recent analysis of the property market, has questioned whether making the biggest financial commitment of one's life without job security is 'wise'. 

That said, it's still unclear what type of a property market downturn we will be seeing at the end of the year. As Phil Spencer continues in his blog post What's Really Going On In The Property Market, 'while we have mortgage holidays and low interest rates there is little to no incentive for homeowners to sell up.' And, he says, 'it won’t be until all these excellent, but temporary support measures [such as furlough], come to an end this autumn that it is even possible to assess how things will look on a wider scale.'

A repeat of 2008, with its many repossessions, is, fortunately, unlikely. The reckless lending that was partly to blame for the crisis has been mostly eliminated from mortgage lending practices, and the rise of the long-term fixed mortgage means that many existing home owners have been able to plan for the future.

However, the sharp decrease in the numbers of first-time buyers will almost certainly cause a property market slump even if the warnings of mass unemployment don't materialise. For most first-time buyers, keeping a job that doesn't pay enough to save for the larger deposit now needed to buy a house won't be helpful for getting onto the property ladder. In effect, by not lending, mortgage lenders are making sure that the property market slump really does happen. The current lack of supply is propping up the market, but this heightened demand will almost certainly subside by the end of the year. 

If you are a first-time buyer, your top priority now should be weighing up the risk of unemployment against your desire for home ownership. While job security is something that's always relative, you do need to be fairly certain that you won't be made redundant in the coming months before you commit to a house purchase – and before you can successfully apply for a mortgage. 

Having said that, we simply don't know how long the economic downturn from coronavirus will last, so don't make the decision not to buy solely out of caution. If you are in good financial shape and (this is crucial) have some savings to fall back on should you need to, there's no reason not to buy. 

Remember: if you are able to get a mortgage, you will have access to low rates and fixed-term deals that will make financial planning easier. We've teamed up with online mortgage expert Habito: use their free comparison tool below to see what mortgage deals you could get.