Does a three-tier lockdown mean a three-tier housing market?
Since the UK housing market re-opened for business on 13 May it has had two-tiers. Tier 1 comprises the financially secure whose jobs have not been impacted by COVID and who have seen their savings rise and tier 2, the financially stretched, whose jobs have been impacted by COVID and seen their financial situation worsen. Those in Tier 1 can choose to move, Tier 2 cannot. We believe that whilst a three-tier lockdown will not create a three-tier housing market it will see the ranks of those in Tier 2 swell and compound the problems of those already there.
The Two-Tier Housing Market
Those fortunate enough to be in Tier 1 are those who have seen no change to their incomes and a big reduction in their expenses. Restrictions on travel, social interactions and the range of permitted social activities have limited the opportunities for those in Tier 1 to spend and therefore their savings have risen, and many have chosen to invest those savings in property. Those in Tier 2 have seen their incomes fall often by a larger amount than they have been able to reduce their expenses. With respect to the housing market, those in Tier 2 have found that saving for a deposit is now harder and the amount they can borrow is lower. Many of those in Tier 2 who want to move are now not able to.
Do Three Tiers go into two?
In our view, the three tiers of lockdown will exacerbate the current two-tier housing market rather than create a third tier. Lockdown Tier One is essentially the level of restrictions already in place for most before today’s changes, whilst Lockdown Tiers Two and Three represent higher levels of restrictions. In our view, as an area moves from Lockdown Tier One into Tiers Two and Three, more people will leave the ranks of the financially secure and join those of the financially stretched. Lower levels of trade will leave many employers struggling to pay the wages and the number of redundancies will continue to rise.
First Time Buyers more at risk than home movers
Whilst the physical risks of the pandemic increase with age, it appears that the financial risks move in the opposite direction. The ONS reported that employment is down about half a million since the start of the pandemic with 16-24-year-olds making up around 300,000 or 60% of the total. Age is important, the young are more likely to be first time buyers, the older, existing homeowners. In our view, the current ‘mini-boom’ is driven by home movers and the equity rich, but the housing market cannot function efficiently in the longer run without a steady supply of first-time buyers. If the current situation continues the mini-boom could run out of momentum as quickly as it gained it and transactions levels could stagnate until the pandemic has passed.
Mortgage lenders see the risks
As the pandemic took centre stage, high loan to value mortgages exited stage left at very high speeds. Lenders see the downside risks more acutely than the housing market itself, perhaps because their liabilities do not end when the transaction completes, they are at risk until the mortgage is repaid.
The UK Government has a tough call to make
Balancing lives and livelihoods is always going to be difficult and we do not offer solutions in this article, however, the longer the pandemic continues, the harder it will be for the housing market not to catch a cold.
Appendix: The Three Tier Lockdown
Tier 1 Lockdown:
The standard level of lockdown already in place continue to apply:
- All businesses and venues can continue to operate, in a COVID-19 Secure manner, other than those that remain closed in law, such as nightclubs.
- Certain businesses selling food or drink on their premises are required to close between 10pm and 5am.
- Businesses and venues selling food for consumption off the premises can continue to do so after 10pm as long as this is through delivery service, click-and-collect or drive-thru.
- Schools, universities and places of worship remain open
- Weddings and funerals can go ahead with restrictions on the number of attendees
- Organised indoor sport and exercise classes can continue to take place, provided the Rule of Six is followed
- People must not meet in groups larger than 6, indoors or outdoors
Tier 2 Lockdown
Tier 2 lockdown comprises the restrictions of Tier 1 Lockdown plus the following additional measures
- People must not meet with anybody outside their household or support bubble in any indoor setting, whether at home or in a public place
- People must not meet in a group of more than 6 outside, including in a garden or other space.
- People should aim to reduce the number of journeys they make where possible. If they need to travel, they should walk or cycle where possible, or to plan ahead and avoid busy times and routes on public transport.
Tier 3 Lockdown
This is for areas with a very high level of infections. The Government will set a baseline of measures for any area in this local alert level. Consultation with local authorities will determine additional measures.
The baseline means the following additional measures are in place:
- Pubs and bars must close, and can only remain open where they operate as if they were a restaurant which means serving substantial meals, like a main lunchtime or evening meal. They may only serve alcohol as part of such a meal.
- Wedding receptions are not allowed
- People must not meet with anybody outside their household or support bubble in any indoor or outdoor setting, whether at home or in a public space. The Rule of Six applies in open public spaces like parks and beaches.
- People should try to avoid travelling outside the ‘Very High’ area they are in, or entering a ‘Very High’ area, other than for things like work, education, accessing youth services, to meet caring responsibilities or if they are in transit.
- People should avoid staying overnight in another part of the UK if they are resident in a ‘Very High’ area, or avoid staying overnight in a ‘Very High’ area if they are resident elsewhere.