THE UK has slumped into its worst ever recession, throwing the property market into uncertainty.
The Office for National Statistics (ONS) this week revealed the economy crashed 20.4 per cent in the three months to June.
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It followed a 2.2 per cent drop in GDP between January and April, meaning the UK has officially entered a recession for the first time in 11 years.
Economists consider two consecutive three-month periods where GDP falls as the technical definition of a recession.
GDP plunged as Brits spent less money when shops were forced to close due to the coronavirus crisis, while factory and construction output also fell.
But if you’re planning to buy or sell a property, we explain what the recession means for house prices.
House price growth typically slows or drops when the economy does poorly.
This is because a recession leads to job losses and falling incomes, making people less capable of buying a home.
But the start of the recession has not played out in the usual way, mainly because it’s as a result of a public health crisis rather than a financial one.
It means the financial system has not frozen in the same way it did during the financial crash in 2008, when house prices dived.
Chancellor Rishi Sunak has also aimed to boost the property market by scrapping stamp duty for six months for properties worth up to £500,000.
Experts predicted this would in fact boost house prices, and last week a Halifax price index found that house prices have risen for the first time in four months following the stamp duty holiday.
But separate research by the Royal Institution of Chartered Surveyors (Rics) released today found that while the UK housing market could be heading for a boom, this is likely to be followed by a bust.
The study suggested house price rises won’t continue when wider government schemes, including furlough, are phased out later this year.
There are also fears the property market will slow once the stamp duty holiday comes to an end on March 31 next year.
Earlier in the crisis, property price falls of 5 per cent had been predicted by the end of this year.
House prices jumped £4,500 in July as the property market bounced back from lockdown – but experts have warned the recovery won’t last.
Nationwide chief economist Robert Gardner said market conditions will likely weaken once the furlough scheme finishes in October.
Meanwhile, Paula Higgins, founder and chief executive of HomeOwners Alliance, told The Sun: “This is in no way a normal recession so it will be extremely difficult to predict what will happen.”
If you’re on the market for a property during the recession, you may benefit from lower prices and a quicker sale.
Ross Counsell, a chartered surveyor and director at property buyers Good Move, told The Sun: “Lower prices mean it can be easier for people to get on the property ladder and buy a home, especially first-time buyers.
“You may also find current homeowners are willing to lower their asking price to sell their home as quickly as possible, which also means you can get a great price on a property during a recession.”
However, buying a home during a recession doesn’t come without risks.
Although house prices could be lower, you may need a larger deposit than you would in a healthy economy.
A number of lenders have pulled 5 per cent deposit deals recently due to coronavirus, meaning many first-time buyers will need at least 10 or 15 per cent.
And although mortgages with a 10 per cent deposit have made a comeback, you may struggle to get one if you’re buying a flat.
It means some may be locked out of the market even longer until they’ve saved enough cash.
Also keep in mind that house prices could fall further after you’ve bought, which may leave you in negative equity.
This means you owe more on your mortgage than the value of your home, and mainly affects people with small deposits with larger mortgages.
Paula Higgins said: “Our advice would be to not stall your plans to move but do think longer term and find a property you will be happy with.
“It means that if prices do drop you can hang tight until they recover.”
Fewer people generally put their homes on the market during a recession in order to wait until the economy recovers and house prices increase.
This means there will be fewer properties to choose from, and there may be issues with those that are on the market.
Mr Counsell warned buyers to be “wary” of cheap house prices before committing to buying a property.
He said: “Generally, the lowest-priced homes will require many repairs that will cost buyers in the long run, so be wary of this when looking to buy a cheaper home in the recession as you may end up spending thousands on big repairs later on.
“Don’t get swept away by a low house price or jump at the first rate a mortgage lender offers. This is a big decision and one that needs to be thought about carefully.”
Paula Higgins also urged home buyers to select their conveyancer or solicitor carefully, and to make sure they’ll be able to work if there’s another lockdown.
We explain how to recession-proof your finances after the economy crashed.
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