No, Coronavirus Is Not Going to Mean You Can Afford to Buy a House

Looking at the papers, you might think it's a peachy time to quit sending your rent to a landlord each month and, instead, simply snap up a cheap home during all the corona chaos.

Many first time buyers have piggy-banked the cash they usually spend on a few months of pub trips and are now sitting on a healthy deposit, according to the Sun, which predicts we'll be "fleeing expensive rents in the city for cheaper monthly mortgage payments elsewhere". There could be "a deal to be had if first time buyers act quickly", teases the Independent. Anticipating a steal, record numbers of first-time buyers have registered with estate agents, reports the Times.

That's right: every cloud has a silver lining, and one might be that young people could finally be able to afford to buy houses as boomers and buy-to-let landlords are forced to loosen their stranglehold. Or could they?

Signs for homeowners are certainly grim. House prices are predicted to fall fast, with sellers already cutting chunks off sale prices agreed before lockdown to keep deals moving. Estate agents Knight Frank predict the market will dip by 7 percent, while Lloyds Bank say a 30 percent crash is possible. Most forecasts now expect that between 10 to 20 percent of house prices will vanish this year, including estimates by the Bank of England and independent researchers CEBR.

This kind of slump is a disaster for homeowners, and conventional wisdom would suggest that’s good news for some buyers – particularly young low-earners and first time buyers – who could be offered a chance to get a foot on the property ladder while prices are low.

But this time, things could be different. Banks are cutting lending, wages are likely to stagnate and there are indications that corporate investors are ready to step in and outmuscle regular buyers.

The UK is braced for the arrival of an aggressive new force in housing markets: Wall Street landlords, like the massive private equity firm Blackstone, which have gazumped regular buyers to snap up hundreds of thousands of under-valued houses across the world.

Since the 2008 financial crash, whenever house prices have dipped – in California, Barcelona and Dublin, to name a few places – these vulture firms have arrived, amassing properties, waiting for prices to recover and reaping huge profits in the process. They are currently sitting on a record $2 trillion "war chest", according to the Financial Times, which claimed "many rainmakers believe they are finally set to strike the deals of a lifetime".

So far, these firms have been less interested in typical single-family homes in the UK, preferring to buy slates of unsold new builds. New builds make up just 15 percent of house purchases in total but are disproportionately sold to first-time buyers, as they are often cheaper and eligible for government Help to Buy schemes.

If expected prices for new builds dip in value, investors could step in to quietly buy up apartments en-masse before they hit the market, depriving first time buyers of a bargain.

"In a lot of cases, we won't actually hear about what deals they have done because the developers will be keen to avoid letting others know what discount they gave to them," said housing market analyst Neal Hudson. "And so it may be some time before we actually find out what they have been up to."

Hudson, UK housing specialist at residential analysts BuiltPlace, said buyers with cash in the bank come first during a recession, allowing investors with deep reserves to make deals quickly: "We'll probably see a shift to more people buying homes with cash outright during the next few months and possibly years, and that inevitably means that large-scale investors will also be a big part of that."

Much of the analysis in newspapers still follows the old wisdom that first-time buyers should generally benefit if house prices fall. But mortgage broker Andrew Montlake warns young buyers not to expect a good time. "It's going to be more of a tricky time for them – let's be honest about it," said the founding director of London-based brokerage Coreco.

UK high street lenders have already announced restrictions on lending to customers with small deposits, meaning many less wealthy buyers will be locked out of the mortgage market. Almost all 95 percent loan-to-value mortgages – which have been marketed to young buyers, and require them to put down only a 5 percent deposit – have already disappeared, with lenders including Nationwide and Santander fleeing the market.

According to Joe Beswick, head of housing at the New Economics Foundation, already well off renters who have saved money by not going to the pub during the pandemic could be the “lucky few” to take advantage of a dip in price, but “for the majority, especially those who take an income dip, which is going to be a great many, this is going to make their housing situation worse.”

Even when things do pick up, hopeful buyers face competition not just from regular people, but from corporate vultures who stand to make a killing out of the carnage caused by the pandemic.

@mjponsford / @Ruairi_Casey