For many months now, the future has daunted the minds of millions of Brits fearing what is yet to be discovered in the thick of theCovid-19 aftermath. Throughout April and June, the nation was forced into a full lockdown which caused the UK economy to suffer its biggest ever slump on record. The coronavirus lockdown delivered on its promise to massively shrink the UK economy during this period, with a huge 20.4% contraction in comparison to the first three months of the year. For this reason, it was only a matter of time before the UK would officially enter its first recession in 11 years.
Since 2009, a recession has been defined as two consecutive quarters of economic decline. So when shops were ordered to close, it was inevitable that household spending would instantly plunge along with factory and construction output. This is why Chancellor of Exchequer Rishi Sunak has repeatedly warned the nation to prepare for the worst yet to come. Especially given that the clock continues to tick towards the end of Rishi Sunak’s infamous furlough scheme. “I think most people would agree that that's not something that is sustainable indefinitely," Sunak told the BBC.
The service sector has suffered its biggest quarterly decline on record, keeping in mind that this is the power source to four-fifths of the UK economy. The ONS explained that the collapse in output was underpinned by the drastic closure of shops, hotels, restaurants, schools and car repair shops. Between April and June, the number of people in work fell by a staggering 220,000, according to official job figures released last week. Despite the economy now being more than a fifth smaller than it was at the end of last year, the fall is still not as bad as that of Spain suffering a 22.7% decline.
What does a recession mean for the UK housing market?
It is important to remember that a recession isn't a reflection of the current economic state. Rather, it is a reflection of the economy over the past 2 quarters. So when the news says "We are officially in a recession", they are saying that the economy has had a hard time over the past six months. The UK housing market is back on the rise and is as strong as ever!
As touched upon before, it is clear that housing is not the worst hit sector in the UK. In fact, house prices and forecasts have remained buoyant since overcoming the short-term dip in transactions during the beginning of the lockdown’s end. As Elavace have countlessly reiterated, this recession is completely unlike that of 2007-2009 where the housing market, shares and investments all took a huge hit in the crash.
Going one step further, this recession is completely unlike any recession in history. Especially considering the rental market is experiencing a heightened amount of activity set to climb even further as a consequence of the furlough scheme’s closure. The chancellor has stressed that the government must not pretend that "absolutely everybody can and will be able to go back to the job they had.” Along with the Bank of England, warning that unemployment could almost double to 7.5% by the end of 2020, a level that would mean around 2.5 million people are out of work.
Be that as it may, houses prices have increased by 1.6% fromJune to July, according to the latest house price index from Halifax. This represents an annual change of +3.8% from 2019, suggesting the start of a“mini-boom” in the property market. So despite the significant shift to the rental market, buyer demand is continuing to soar like never before. One major factor to this fast rebound in the market is the groundwork that had been laid prior to the outbreak. Thanks in part to the “Boris Bounce”, the months leading up to March represented great prosperity in the UK economy with the property market at the stem of it. The value of British homes had grown at their fastest rate since as far back as February 2017 with house prices growing by 3.7% on an annual basis in April, according to Nationwide.
Whether it be renting or buying, people will always need somewhere to live. This is why the property market is thought to stand in good stead for recovery and moreover, alleviate much of the economic pain that the nation is yet to face. With this in mind, Rishi Sunak has successfully managed to stimulate the market by enforcing an exemption from tax on all properties worth up to £500,000. Running until next Spring, these major changes can save homebuyers as much as £15,000 on their purchase. As a result, buyer enquiries have increased dramatically, according to a number of reports from market leaders including Savills. In addition to this, Halifax managing director Russell Galley, the government’s stamp duty cut has supported the post-lockdown spike. Going to say that confidence is currently growing and the future looks“brighter than expected”.