UK house prices: property values set to fall after lockdown as estate agents downgrades forecast

House prices are set to fall further than anticipated this year, despite the unexpected reopening of the housing market last night, after the Government confirmed at the weekend that some lockdown restrictions would last until at least July.

Knight Frank said UK house prices would fall seven per cent compared to last year, in a revised forecast released yesterday ahead of Housing Secretary Robert Jenrick’s announcement.

At the start of April the estate agent predicted house prices would drop three per cent, assuming lockdown was lifted by the end of this month.

The minister’s surprise move triggered a spike in activity today. However, the revised report said much of the decline in prices had already taken place between March and May, so the reopening of the market today after seven weeks on pause would not impact the forecast.

The predicted price falls are based on discounts that home buyers are asking for when they make an offer. In March, homes were sold for 98 per cent of their asking price on average, according to Liam Bailey, global head of research at Knight Frank.

Sellers, in comparison, are accepting offers for 94 per cent of the asking price on average, which would represent a four per cent drop in sold prices since March.

Allowing for the fact that some asking prices will also have dropped since March, Bailey estimates that house prices have fallen five per cent since the beginning of the coronavirus crisis.

However, he said they are unlikely to keep falling at the same rate. “The key question is, will vendors accept discounts of more than five per cent? Some will, but there is growing evidence from the widening spread between average offers and the offers that are being accepted, that many simply won’t.

“If we add into the mix the fact that we have low new-build rates coming through in 2020, low inventory and low interest rates, it becomes less likely we will see significant further falls from here.”

The agent had previously said it expected more than half a million home sales to be “lost” this year as a result of Covid-19 and this remains unchanged in its new calculations, although the report says this might be a low estimate.

“Looking at the volume of activity that has occurred through lockdown – it might be that we were slightly pessimistic. More sales have taken place, and fewer sales have failed to complete, compared to what we initially expected,” said Bailey.

However, he said Knight Frank’s initial forecast was unchanged as it anticipated “some additional challenges ahead for transactions from future pricing discussions”.