ESPC: COVID-19 and the Scottish property market - what we know so far

ESPC has studied some of the effects of the coronavirus pandemic on the property market, looking at how the market and agents have adapted to the current circumstances and what the future may hold.

Interest rates and the mortgage market 

In the first sign that the Bank of England saw Coronavirus COVID-19 was having the potential to impact the UK economy, interest rates were slashed from 0.75% to 0.25% on 11th March. A week later on March 19, the base rate was reduced to 0.1%, the lowest in the Bank of England’s history. 

The aim of this unprecedented rate reduction was to boost and stimulate the economy in what would undoubtedly be a turbulent period. Mortgage borrowers who have rates linked to tracker or variable rate mortgages have benefitted from this decrease in rates as lenders have passed the rate reduction on.

Interest rate reductions would normally be reflected in the products offered by mortgage lenders. Due to the economic effects of COVID-19, however, many lenders have chosen to temporarily remove or restrict their range of products available.

Many lenders are now seeking a larger deposit of between 15–40%. However, there are some mainstream lenders still offering mortgages and re-mortgages to clients with a smaller deposit. As the market is continuing to change and adapt, any interested buyers or re-mortgagers should speak to their mortgage adviser.

Within the range of financial assistance offered by the UK Government due to COVID-19 is the option for mortgage borrowers to take a three-month payment holiday.  Although the term ‘holiday’ has been applied, it is in fact a pause from making normal mortgage payments for a period of up to three months.

Interest will still be applied on the outstanding debt and the debt will still need to be repaid, so you end up paying more in the long term. Under the current situation, a mortgage holiday should not affect individual credit scores. Anyone requiring such assistance should contact their lender directly.

Property sales volume 

From mid-end March onwards, there has been a marked decrease in both property sales volume and the number of homes coming to market. This is unsurprising, considering the stay at home guidance meaning people are unable to attend in person property viewings and in person valuations.  

The closure of the Application Record by Registers of Scotland (ROS) on March 24 also affected the completion of property transactions. Whilst the Law Society of Scotland and ROS worked to establish interim measures to allow certain transactions to complete, the Scottish Government released guidance on 31st March that property moves should be delayed until after the social distancing measures have been lifted.  

This has obviously impacted the volume of completed property sales during this time. The significant drop in sales volume is a result of social distancing measures and guidance from the Scottish Governmentrather than lack of demand.  

Properties coming to market 

As mentioned, there has been a marked decrease in the number of homes coming to market since the current social distancing measures were put in place.  

While ESPC agents are now offering virtual valuations to help people get started on their selling journey, properties in Scotland also need a Home Report before being marketed which requires a surveyor to attend the property in person. At present, the approach of surveyors is to delay these until after the current social distancing measures have been lifted.  

It is likely that short term let landlords are choosing to step away from this market due to the travel restrictions currently in place. It appears some are choosing to sell their property, while some may be moving to the long-term letting market.  

Property Selling Prices

In ESPC’s March 2020 House Price Report, it was revealed that, while there had been decreases in sales volume and homes coming to market, both average selling prices and the average percentage of Home Report valuation achieved remained relatively steady.  

Some ESPC agents have continued to report receiving offers on properties, often over the Home Report valuation. At present we expect thatwhilst transaction volumes will decrease significantly during this period of social distancing, property selling prices will stay relatively stable.  

Resilience of the Scottish property market 

From the start of 2020 until the middle of March, there was lots of activity in the local property market in terms of both listings and sales. Home Report downloads and viewing requests were also up year-on-year suggesting strong demand for property in Scotland 

In the past, the Scottish, and particularly the Edinburgh, property market be remarkably resilient. While the 2008 financial crash was a very different situation – it had much more of a slow burning impact on the market rather than the almost instantaneous effecof COVID-19 – there may be some similar trends that emerge 

In 2008, while transactions volumes fell, the Edinburgh property market weathered the recession well in terms of selling prices. 

The property market is influenced by other economic factors, including unemployment levels. If the UK and Scottish Government measures to protect jobs and businesses are successful, then this should help to ensure the strong demand we saw for property at the start of 2020 remains as the social distancing measures are lifted.  

Paul Hilton, CEO of ESPC, said: “Coronavirus COVID-19 has had a significant impact on the Scottish property market in terms of sales volume and the number of homes coming to market. This is to be expected with the current social distancing measures in place and the advice of the Scottish Government to delay moving home until after these are lifted.  

“At the start of 2020, there was strong demand for property in Scotland and so we expect property market activity to resume once the current social distancing measures have been lifted.” 

Read all of our articles relating to COVID-19 here.

Tags: ESPC, COVID-19

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