Why house price falls are bad for first time buyers

Published 16th of August, 2020

This week we had results from Skipton Building Society and its estate agency Connells, a trading update from national housebuilder Bellway, the July RICS UK Residential Market Survey and a report from the Resolution Foundation explaining why house price falls and the Stamp Duty Holiday are bad for first-time buyers.

The thrust of the news was in keeping with that of the previous fortnight: July has been strong, but the outlook remains uncertain.

Confirmation that the UK is now in recession will not have surprised many, but interestingly it has led several housing market commentators and property journalists to view their glass as less full than it was last week with furlough driven unemployment being the main cause for concern for the health of the mini-housing boom.

Perhaps the takeaway is if you want to move soon, move now because there is a risk that as autumn comes the UK housing market may decide to hibernate for the closing stages of 2020.


H1 2020 results from the UK’s largest private estate agent

What they said

  • H1 20 revenues £168.7m down 24%
  • H1 20 Pre-tax profits £17.2m down 34%
  • House sales (exchanges) down 29%
  • Trading in July: applicant registrations up 37%, mortgage appointment up 56%, market appraisals up 23% new instructions up 25%

Twindig Take

As a private company Connells can cherry-pick what KPIs and performance statistics it shares with the market, however, the revenue and profit numbers were strong and the July trading data robust. In our view, with around 600 branches nationwide Connells has a good grasp of what is going on at the coal face of the UK housing market and financial performance is stronger than many of its peers and July trading in-line with what others are saying.

As part of Skipton Building Society, we imagine that Connells had to be singing from the same hymn sheet in terms of outlook and so far lenders have sounded a more cautious tone that estate agents, however, we do not see any significant differences in the way that Connells or its peers view the outlook for the market – tailwinds for now, but possible headwinds on the horizon.

Skipton Building Society (owner of Connells)

First half results

What they said

  • H1 2020 results
  • What they said
  • H1 20 Pre-tax profits £34.4m down 49%.
  • At its peak 15% of mortgage holders deferred payment, falling to 5% by 30 June 2020
  • The base case for house prices in 2020 a fall of 4.9%, downside a fall of 5.9%, upside no change
  • Scenario weights: Base case 60%, downside case 35%, upside 5%

Twindig take

In-line with other mortgage lenders Skipton has seen a worsening in the economic outlook due to COVID, whereas it had expected house prices to be flat in 2020 it no expects a fall of 5%. The quality of the mortgage book appears high and we are impressed with the level of mortgage holders who have returned to full mortgage payments following their payment holiday. We suspect that Skipton won’t be topping the first time buyer mortgage charts, which may at times cause frustration for their estate agency arm Connells, but it is no doubt the right thing to do from a lending risk perspective


Large UK Housebuilder, full-year trading update

What they said

  • Number of legal completions (home sales) fell by 31% to 7,522
  • Customer demand increasing since the market re-opened
  • Help to buy supporting demand
  • Forward order book up 35% by volume and 44% by value

Twindig Take

Bellway’s trading update highlighted that there are many parts to the UK the economy and that it is not a case of one size fits all.

Whilst overall UK employment fell by the largest amount in over a decade between April and June Bellway has returned all staff to work and chose not to take advantage of the UK Government’s Coronavirus Job Retention Scheme.

COVID has not changed the fact that we have a shortage of homes in the UK and Bellway is doing whatever it can to supply the homes we need. Demand remains strong and house prices firm. There is uncertainty ahead, but even with limited visibility UK households have yet to lose faith in the bricks and mortar as a store of value and shelter and Bellway is here ready and willing to meet the needs of the house-buying public.


July UK Residential Market Survey

What they said

  • Activity rebounds firmly, but caution remains on the long-term outlook
  • Stamp Duty Holiday playing a significant role in lifting demand
  • Continued growth in sales expected on a three-month view
  • Sales expected to fall on a 12-month view as both furlough scheme and stamp duty holiday draw to a close

Twindig Take

The RICS July residential market survey echoes what we have been hearing from estate agents: rising buyer enquiries and increasing sales instructions. This has led to higher sales per agent of more homes for sale. So far so good, however, the good news in the short term it is tempered by caution about the negative impact of the closing furlough scheme and the ending of the stamp duty holiday in March. It seems that for now, surveyors believe that the housing market mini-boom is just that rather than a sustained recovery.

Resolution Foundation

The think tank focused on improving living standards for those on low to middle incomes. Q3 Housing Market Outlook

What they said

  • House price falls are not good for first time buyers
  • stamp duty holiday does not help first time buyers
  • Lack of access to deposits is the elephant in the room for first time buyers

Twindig take

Be careful what you wish for, falling house prices might seem like a good thing for aspirant first-time buyers. However, if the root cause of house price falls is an economic recession where wages fall and unemployment rises first time buyers may be less able to buy homes than they were before.

The report shines a light on the helpfulness of help to buy, which surely needs to be extended to help counter COVID, but is silent on the impact of Bank of Mum and Dad on house prices.

They share our view that the Stamp Duty cut is a hindrance rather than a help to first-time buyers and that deposits are the real issue that needs to be addressed. I continue to believe that there is a social good in opening up a properly means-tested Help to Buy for all first-time buyers across the whole market (not just new build) yes it might be inflationary, but no more so than the Bank of Mum and Dad and what is wrong with a bit of inflation, more people complain when house prices fall than when they rise and even the Resolution Foundation who fights the corner of those on low to middle incomes does not think that falling house price will help those who need it.

Housing Hailey

Subscribe to Market Views