The Bank of England has issued a pretty bleak warning that the economy is heading towards the mother of all recessions.
The Bank’s latest Financial Stability Report makes for somber reading.
- The Bank’s scenario was consistent with a 16% drop in house prices.
- One in seven mortgage holders has taken a payment holiday so far.
- The number of new mortgage deals on offer had halved in just over a month.
- There has been a huge contraction in deals for buyers with a deposit of less than 40%
In London the Q1 update from Lonres shows just how dramatic the Lock Down has been. Despite claims from some PR-hungry agents that they have been busy arranging virtual tours and even exchanging contracts on some properties Lonres says new instructions are down 72% and contract changes are just 35% of what they were last year.
Unemployment is predicted to reach 2m by the end of the year. 30% of the working population is being paid by the Government – many are actually unemployed, they just haven’t been told yet.
I think we can expect bonuses to be a rare thing for the next few years. This is going to be painful for the high proportion of Londoners who are used to seeing a significant proportion of their remuneration come in the form of a bonus.
By Christmas hundreds of thousands of people will be earning 80% of what they were earning in January. Whilst I’m not expecting a house price crash it’s clear that people will be able to borrow less and this will put downward pressure on prices.
With rents harder to afford by the 4m who are in the private rented sector yields for investors may result in some landlords deciding to sell up and new ones paying less as they demand higher yields. 2-3% gross may have been enough when house prices were rising but speculators won’t be expecting that to continue.
As I have said previously, I expect asking prices to open at their February/March levels but the first deals to be down at between 5% and 10% down. Whether they will fall further remains to be seen but clearly the Bank of England is expecting that they will.