Valuations have been the hot topic of the mortgage industry during lockdown and the recent return of physical valuations has been key to getting the market going again. But overcoming the challenges when physical valuations were not possible has led to improvements in processes and will contribute in the long-term progress towards returning to normal.
At the moment the new normal remains undefined, but it is likely the market has changed permanently. The challenge now is how quickly we can react to the volatile conditions the lockdown fallout will bring. But within this uncertainty there are some known unknowns we can see that will be crucial.
As we ease out of lockdown, focus turns to how the housing market may react. There are, of course, historical indicators to consider. UK house prices fell 18 per cent in 16 months after the global financial crisis of 2007-2008 and by 20 per cent between 1989 and 1993, but predictions seem less extreme this time round.
Savills updated their UK forecasts, indicating a 7.5 per cent drop in England, having initially predicted one per cent growth for 2020 back in November, but they expect a bounce-back in 2021 and the five-year forecast remains rosier at 15.1 per cent.
Undoubtedly, we will see house price drops in the short-term, but the UK is not one holistic market, and we are likely to see various regions affected differently. After the recession 12 years ago, Northern Ireland saw a bust that took a decade to recover from, whereas London and the South East took only a few years to regain their price drops post-recession.
So far indicators suggest less of a shock.
Measures like mortgage payment holidays and furlough schemes should hopefully assist greatly in preventing major drops in activity, particularly given the low interest rate environment compared to previous downturns such as in the early 1990s. The ability of businesses to remain afloat and keep people in employment will play a significant role in a hoped for v-shaped recovery.
Early signs appear promising. HMRC reported in May that completed sales increased by 16 per cent to 48,450 compared to April. While this illustrates a 49.6 per cent decline on May 2019, other major industries did zero business during the lockdown period, so it can be viewed as a remarkable achievement that so much has been done. This builds a foundation on which recovery can be established.
The industry is better prepared for a financial downturn than it was 12 years ago. The Bank of England introduced a new Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises (TFSME), to aid those lenders that may have liquidity issues in the future, alongside the record low base rate. The industry has stronger regulatory environment and a more responsible lending mind-set with the riskier sub-prime mortgages of the past have all but vanished from the market and interest-only borrowers greatly reduced. Whereas future income shocks may have hindered purchase options for new buyers in the past, the growth of specialist lenders today means many can be considered and personal underwriting allows for lenders to work with brokers and customers, particularly contract workers and the self-employed who may have been refused loans in the past, to get ideal outcomes.
The sector is full of experienced valuers who know their areas inside and out. This knowledge of trends over the past decades will be crucial in ensuring the market moves forward, and without comparable data of recent transactions, valuers will need to use a broader view of asking prices, market activity and other supporting information to form an opinion of market value.
There will be a need to manage expectations from sellers, and ensure that they are aware of the valuation process and how a value will arrive at their figure. Valuations are based on evidence at that point in time using comparable evidence. Valuers won’t look to apply blanket reductions to compensate for economic uncertainties but rely on the evidence available to them. Rightmove reports asking prices for first-time buyers and home movers both increased in June from March.
The rise of remote valuations has had a strong transformative effect on the UK market. Prior to COVID-19 restrictions, Remote Valuations were typically only used on small numbers of mortgage valuations.
There has been a flood of lenders introducing remote valuations and increasing existing use, to speed up the process, which will further help increase transactions in the coming months. This has helped keep the market going and makes the regaining of momentum less of a task going forward.
One big takeaway from lockdown is that technology promises to speed up processes in the future as lenders make increasing use of digital signatures and digital documentation. Cutting out travel costs for meetings may also make relationship building faster and case assessments more immediate. We may see many improvements to our efficiency and speed in the long term due to the changes in work practices that have become common during this time.
Lockdown has changed how many see their homes. No longer is it just a place to live, but it is a place of work, a place to exercise, socialise, and for those with children, a place of study. This could have major ramifications for the housing market as research by Ipsos MORI found 44 per cent of Britons see cities as being less attractive as a place to live in the coming years, and a further 39 per cent see cities become less desirable as a place to work.
A recent survey from Trussle reports that one in six UK adults said they spent time during the pandemic lockdown searching property websites, with relocation and a preference for moving to the countryside high on house hunters preferences.
The overwhelming reason for relocation is to have more space, further away from other people and a desire for a garden, with over a quarter citing this as being prompted by COVID-19.
With lockdown fresh in people’s minds, it is likely private gardens and the promise of more living space in rural areas will become key selling points for housing, and flats with a balcony or access to a roof garden will see increased demand in cities.
There is always the potential of a second wave or further economic shocks, but we now have a better understanding of what to expect. Ensuring the safety of both surveyors and customers is paramount. Many surveyors are already stockpiling gloves, masks and hand sanitisers in this event. Houses in multiple occupation continue to poise the hardest challenge with strict social distancing and logistics being very difficult, but other forms of tenure have provided a template that can be worked towards.
In 2009, home ownership became a poisoned chalice, with the sub-prime market being the spark that caused the US downturn, and in the UK a source of major pain for many who found themselves stuck on interest-only loans or mortgage prisoners tied to defunct banks like Northern Rock. But the nature of this economic shock may have the opposite effect. Lenders have acted quickly to support customers with mortgage and other payment breaks, and lockdown has meant people appreciate their homes, while also motivating home movers and prospective first-time buyers more than ever to make a change.