Thinking of Buying Property During the Coronavirus Pandemic?
If you are buying, selling or looking for a home, you are not alone in having questions right now. Or in being a little shaken up.
Restrictions to movement, a plunging financial market and uncertainty about future income, all because of the coronavirus pandemic, have upended plans to buy and sell homes overnight. Real estate activity has slowed considerably as buyers, sellers and agents try to figure out the path forward.
Properties are still going into contract, but few new listings are coming on to the market, said Katerina Wilkerson, a real estate agent at Keeton and Company in Richmond, Virginia.
Conventional wisdom dictates that the best time to buy a house is in the late summer or early fall, but these are not ordinary times. When the FED announced two weeks ago that it was slashing interest rates to counter the economy-crippling effects of the coronavirus pandemic, some wily investors and would-be house hunters had visions of real-estate bliss dancing in their heads. On the surface, it makes sense: Who doesn't want to pay less to borrow money?
But while low-interest rates seem like a good reason to pull the trigger on a big purchase, there are plenty of factors to consider before you take the housing plunge. After all, we're on the brink of a recession and in the throes of a global biological catastrophe, and who knows what kind of social, political, and economic fallout is waiting in the wings.
As the Coronavirus (COVID-19) pandemic continues, and with a U.K. lockdown now in place, the many people who are contemplating buying or selling are likely to put their plans on hold for a while, says T.V. homes expert Phil Spencer. But what if you're already in the middle of a house move?
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Coronavirus Affect on Real Estate
Because of Coronavirus, the real estate industry has taken a real hit. The extent of the effects of the virus on the housing market will be felt for months as well as years to come. Additionally, those effects will vary by sector, region and market.
Some of the real estate sectors that continue to see tremendous hits include restaurants, bars, hotels and a vast number of local entertainment entities. Lots of tourist-focused businesses continue to see immense fallout too.
If you're a buyer, the impact will depend on which stage you're at: 'Those at the beginning of their search are now likely to take a step back, but those further down the track will be doing everything they can to speed up the process and make sure the sale goes through,' says Phil, who is also co-founder of property advice service Move I.Q.
Social distancing guidelines and self-isolation policies will make it 'extremely difficult' to put your house on the market this spring, says Phil: 'Viewings are being cancelled across the board as thousands of buyers opt to stay home or sellers ask agents to cease viewings. With fewer domestic buyers and a scarcity of overseas buyers, transaction levels are likely to fall sharply in the short term.'
Home movers sprung into action at the start of 2020, with sales and valuations picking up significantly in local areas. In January, Rightmove recorded its busiest month ever as home-hunters looked to take advantage of a more specific political outlook. Now, however, amid Coronavirus, it's a different story entirely. The online property portal confirms it has seen a shift: 'We've seen things move more slowly over the past few weeks after what was a hectic start to the year, and we've seen some property sales fall through.'
Rob Houghton, CEO of price comparison site, Reallymoving, adds: 'The enforcement of a UK-wide lockdown will leave thousands of home movers across the country with no choice but to put their plans on hold temporarily and we could see some chains collapsing under the weight of uncertainty. For those who haven't yet exchanged contracts, it would be wise to hold off until the lockdown period is over, to avoid a situation where you are legally committed to completing but physically unable to move due to lockdown restrictions.'
And the government have backed this viewpoint, urging all parties involved in home moving 'to adapt and be flexible to alter their usual processes', explaining: 'There is no need to pull out of transactions, but we all need to ensure we are following guidance to stay at home and away from others at all times, including the specific measures for those who are presenting symptoms, self-isolating or shielding.'
We understand that there are many questions and concerns for people at all stages of the moving process, from those thinking about putting their home on the market to those who are hoping to move imminently. Here we've outlined the key concerns facing home movers and the property market, and practical advice and official government guidance to help you navigate through this challenging time.
Is now really the best time to buy a house?
"Assuming you can afford a mortgage and the other costs involved and your job is not in danger of being cut, then yes," says Amanda Abella, millennial business coach and author of Make Money Your Honey: A Spirited Entrepreneur's Guide to Having a Love Affair with Work & Money. "Smart investors and people who are financially savvy know these times are ridden with opportunity because the general public is going to contract. But every individual situation is different. Unless you're sitting on pretty hefty savings and know your industry won't be impacted by what's going on, then you should err on the side of caution."
And there is good reason to exercise caution. For starters, low-interest rates have little to do with all of the associated costs of purchasing a home, including property taxes, homeowner's insurance, and closing costs that can range from one to five percent of the property closing price.
And here's another point of contention: Mortgage rates, which many people conflate with the interest rate, are at historic lows—but they aren't zero percent. "Lower interest rates mean lower monthly mortgage payments on your home loan; therefore, you technically can pay more since your monthly costs are lower," says Drew DeWitt, senior vice president of investments for Ivy Equities, a Greenwich, Connecticut-based real estate private equity firm. "However, it also means that there is a greater risk in the economy in general. The FED drops rates to spur growth when there is risk of unemployment and people not being able to make their monthly mortgage payments. As a result, banks will tighten their lending standards, and it may be harder to actually secure a mortgage despite the lower rates. This is where people get confused."
Government guidance published on 26 March 2020 is silent on whether moving house counts as essential travel. What it does make clear is that people who haven't yet exchanged contracts on a property purchase should put off doing so. Those, like you, who have exchanged contracts can go ahead if the move is to an unoccupied house. Otherwise, you should take steps to delay your completion date to which end the government is "working with conveyancers to develop a standard legal process for moving completion dates". If moving is unavoidable because you're not able to agree with a delay, you must follow advice on social distancing when moving. For the staff of removal firms, this could be easier said than done. Given the size of most domestic furniture, two people carrying a chest of drawers, for example, are going to be a lot less than two metres apart; ditto sitting together in the cab of the removal lorry.
Given that you're not moving in until the end of April, none of the above may matter because your moving date is well after the end of the three-week lockdown on non-essential movement which is supposed to end on 13 April 2020. However, if the government doesn't see the evidence, it needs to be able to relax restrictions, the lockdown could be extended – some say for as long as six months.
If the lockdown does get extended and your removal company cancels your planned removal (because, say, it doesn't think it is feasible to follow the government's social distancing advice), there is one slight glimmer of hope. Car rental firms are on the list of businesses that are allowed to stay open so there is, at least, the option to hire a van and do your own removals. As far as your end-of-tenancy cleanup goes, although cleaners are not listed as "essential", your cleaning company could still be able to go ahead with the cleanup. Work can be carried out in people's homes provided the tradesperson concerned is well and has no symptoms of Coronavirus.
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Coronavirus Affect on Building Industry
Home and building professionals no longer have access to the supplies that they need. With an enormous number of "stay at home" orders as law, cities around the world, including the U.S. order to shut down and have curfews. Huge numbers of layoffs continue to take shape. And consumer spending continues to decline—economic activity.
In March of 2020, China continues to report a flattening of the Coronavirus curve. This indication provides a glimmer of hope as companies and businesses restart operations.
The impact of the economic discord from the Coronavirus in real estate will vary from state to state, region to region. Only time will tell the effects that the housing market will endure due to Coronavirus.
For buyers looking for a mortgage, the options are starting to dwindle. Some lenders have also begun to rescind mortgage offerings, starting with Halifax refusing to offer mortgages with a loan-to-value (LTV) of more than 60%. Meaning buyers will need a minimum 40% deposit to qualify for a loan.
If you're looking to sell a home and your property is not yet on the market, the procedure is likely to be very challenging as agencies are unable to market on your behalf. It would otherwise be challenging to complete a transaction during this window. But what I do know is that many estate agencies are working through this crisis and they will be able to offer advice and support for when the market reopens. For properties already on the market, it is possible to advertise for sale, but, again, the government's guidance states that people should not be allowed into homes, to enforce social distancing. On the positive side, viewings can still take place through technological means such as virtual or remote views.
The government has said that they are working with conveyancers to develop new legal processes to allow completion dates to be moved to a later date. But for the meantime, the process for those who do wish to proceed under the high-level restrictions is fraught with risk, more details of which can be found on this in the Law Gazette. Overshadowing this, a report in the F.T. suggests the banks are pushing for a full suspension of the U.K. housing market as the pandemic impacts on their ability to deliver accurate valuations as they are unable to conduct building surveys.
Laura Conduit, a property solicitor at Farrer and Co, has said that banks will have to rely on valuations using videos of properties, rather than surveyors, and this could impact on credit teams' decision making as they struggle to determine 'what the value of anything is.' The bottom line is that, for now, some ongoing transactions can proceed, but for the rest, many home moves will likely be put on ice for the time being. That doesn't mean that you can't still look at properties that are already on the market or consider putting yours up for sale. At some point, this pandemic will end, and the demand for housing will surge upwards again.
Speak to Your Agent
If you are looking to buy or sell, my best advice would be to consult your estate agent. Their expertise will be invaluable during this time, and they are working around the clock to provide support to their clients. The government has said to delay sales "as far as possible", although there is no need to pull out of transactions altogether. If you haven't yet exchanged contracts, put the deal on hold – unless the property you are moving to is already vacant, in which case you can continue with the transaction (although bear in mind removals workers may not be able to work).
If you have exchanged and so are legally obliged to complete the purchase, you must follow social distancing guidelines during the transaction. Speak to the conveyancer and all parties involved in the sale, including the buyer or seller, to agree on a later date after stay-at-home measures are lifted to complete the purchase. Mortgage lenders are also working to extend offers for up to three months for buyers who have exchanged.
The government also advises changing move dates if anyone in the chain is having to self-isolate because they are vulnerable or have symptoms.
The police guidance on enforcing stay-at-home measures has an exemption for 'critical home moves' if a new date is unable to be agreed.
Be wary that the mortgage offer has changed drastically. Overwhelmed with demands for payment holidays, banks have pulled more than 1,500 mortgages from the market.
Some lenders, such as Vida Homeloans and Atom Bank, have withdrawn from the market entirely. Others, such as Halifax and Family Building Society will no longer lend to buyers who do not have at least a 40 per cent deposit. The changes will hit first-time buyers, who had previously been able to get mortgages with a 5 or 10 per cent deposit, particularly hard.
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Virgin Money and Skipton Building Society have suspended all new house purchase mortgage applications. It is understood other lenders are pushing for transactions to be interrupted by the government. "We have had clients mid-way through a mortgage application only to find the process is halted and the product withdrawn before they can reach completion and the release of funds," says Angus Stewart, of Property Master, an online buy-to-let mortgage broker.
Zoopla has forecast drops in transaction volumes of as much as 80 per cent in individual spring months and an average fall in agreed sales of 60 per cent between April and June. Savills has forecast a short-term price drop of 5 to 10 per cent. But analysts are not anticipating a crash.If buyers can't go to house viewings, fewer even heavily discounted sales will take place. And most sellers simply won't accept significant cuts, says Lu; they will just sit tight.
The number of forced sales, which typically drives down prices in times of crisis will also be reduced and delayed by the government's measures to introduce mortgage holidays and the Bank of England's decision to cut the base rate to 0.1 per cent. Experts are anticipating a 'V-shape' dip, with a relatively swift recovery. Lu expects an overall 3 per cent fall in house prices across 2020 and a return to growth in 2021. Though he does not anticipate a surge, market confidence will take a while to recover.
For now, if buyers are under offer, "they should definitely renegotiate," says Jess Simpson, a buying agent in the prime country market. She recommends trying for a 10 to 20 per cent reduction. There are caveats: the recent government measures mean more sellers can wait things out, says Robin Chatwin of Savills. "We had someone who tried to negotiate, and the seller just said no."
In the prime London market, there are a few cases where "we have been in a standoff for a few months, and I am now starting to get calls from the sellers," says Roarie Scarisbrick, a buying agent at Property Vision. "But the majority of sellers are discretionary. They just won't sell." The government has effectively frozen all transactions that haven't exchanged contracts, so you won't be able to move to anywhere new quickly.
But if you have time to shop around, "it's a fantastic opportunity for a good deal," says James Hyman of Cluttons. "Anyone with a property still on the market is going to be a motivated seller, and you're going to have no immediate competition." But hard-nosed negotiators will also be taking a risk. "Nothing is coming to market, and homes that were just launched are being taken off," says Simpson. Under the lockdown, house viewings are almost impossible.
The number of homes being sold off-market will rise, says Chatwin. "The people who have taken their properties off-market are in their seventies, and they are self-isolating," he says. There are still people who want to sell their homes, and they just can't go through the process right now. For those going through the legal processes, flexibility is critical. Chatwin notes one family who won a sealed bid on a property but had to go into self-isolation. In this case, "the solicitor has just accepted the compliance we did on the buyer earlier," he says.
Andrew Boast of SAM Conveyancing advises using a solicitor that employs online I.D. checks using scanned documents. Using larger law firms, which have more resources and a more significant workforce, will mean increased protection against a slowdown in your purchase if your solicitor falls ill, he adds. Note that almost all surveying is now on hold though it is still possible. Surveys can be arranged if a property is vacant, or the owners are out, says Boast.
Coronavirus' Affect on Removalists
The British Association of Removers has also issued guidance to its members to postpone all moves, excepting those already underway, during the lockdown period.
Other issues will arise if the current owner or tenant is undergoing self-isolation, or if either the buyer or seller becomes seriously ill. In conveyancing, there is no clause for unforeseeable circumstances in standard sale contracts, says Boast. Both buyer and seller must approve additional requirements to allow deals to be rescinded without financial implication due to a coronavirus-related issue, he says."The most important thing is to talk to the other side, everyone has got to work together," says Chatwin.