Buying Property in the COVID-19 Crisis
As we all know, the economy has taken a big hit since the outbreak of COVID-19. Businesses are unable to run as normal due to inability of movement of people. This has caused a massive stress on the economy.
The housing market has slowed dramatically as viewings are unable to take place and valuation surveys have been cancelled. Solicitors and mortgage brokers are still working from home which means, despite popular opinion, house sales are still progressing.
Many estate agents have adapted, and are conducting virtual viewings for buyers and tenants. However, many are unable to provide any kind of viewings on existing properties until lockdown finishes.
COVID-19 has had a massive effect on the economy. The Purchasing Managers Index (also known as PMI) for services firms that have been derived from March, portrays a dramatic fall. It is an economic indicator that is taken from monthly surveys from purchasing managers from specific companies. Surveys are based on factual information, such as new orders, output and employment etc.
PMI is the closet we will get on hard data on these companies, making it one of the most reliable indicators for our economy. PMI gives an advanced signal on what is happening in the economic climate.The composite PMI was at it's weakest since 1998.
The graph bellows highlights composite PMI against GDP and the other external factors that influence fluctuation in the economic climate.
“The colossal drop in the composite PMI – more than three times bigger than its previous record decline – signals clearly that the economy is hurtling towards a deep recession,” said Samuel Tombs of Pantheon.
As Pantheon predicts we could be heading into the biggest economic recession since 2008. So if a recession can be a good time to invest, why are people saying it's bad time to invest in property?
Harder to get mortgage products with a lower LTV%.
Solicitors , valuers, surveys – not working as efficiently – potentially only desktop valuations
No movement of people FOR THE MINUTE
Property market seems violate and may crash
All refurbishment and construction work has currently stopped.
With this being said, there are also some advantages to purchasing property at this time.
Motivated sellers- vendors with properties already on the market are likely to be more motivated to sell their properties to extract cash. Prices may be potentially more negotiable. But remember, you want to be creating WIN-WIN situations for vendors not taking advantage.
Reduced prices- Naturally house prices are going to fall due to supply and demand.
By buying a property now it is more likely to benefit from capital appreciation as where houses prices fall they always go up again.
Influx in stock- more properties on the market-more deals.
Now can be considered a great time to buy property if you have CASH. This way you do not need to worry about interest/lending rates and will be able to benefit from discounted purchases and capital appreciation.
If you are planning on buying with finance, you will need to:
Check with your mortgage broker what options are still available to you.
Counter for the fact that physical valuations are all currently cancelled (although there are desktop valuations the DUV may be lower than expected).
If the property you are planning on purchasing needs work done to it you will need to wait for the lockdown to lift before it can commence.
Buying property at this current climate is going to be very subjective on the investor and their circumstances as well as their appetite for risk. To find out how you can benefit from a recession check out our blog post: How to Thrive in a Recession.
We wish everyone all the best in these uncertain times, stay safe!
Thanks for reading.