How will the 2020 recession affect the UK housing market
It's official. The UK is now in recession for the first time in 11 years!
Let’s cut to the chase - the UK economy has over the past months experienced its largest slump on record, as a consequence of Lockdown 2020. And as a result, has officially entered what experts are calling ‘Recession 2020’ – the first official recession since 2009!
Since Lockdown was enforced in March, the UK economy shrank a whopping 20.4% (BBC), which has it on track to be the worst hit economically by the virus out of all the G7 countries. So, with these thoughts in mind, what could be the impacts of the 2020 recession? And what implications will it have on the housing market?
What is a recession?
An economic recession is caused when two successive quarters show a consistent decline in GDP. GDP stands for Gross Domestic Product and is the total market value of goods and services produced by a country. There are four quarters per calendar year, so in essence a recession is classed as anything over six months.
During Q1 (January to March), the UK’s GDP had already seen a decline of 2.2%. This coupled with the 20.4% in Q2 (April to June) is the primary reason why the current economic downturn, will go on to be labelled as a ‘recession’. The industries most exposed to government restrictions have also seen record quarterly falls during Q2.
However, it’s worth noting that despite the low figures of Q2 that GDP did pick up as restrictions on movement were eased – this is estimated to be an improvement of 8.7%.(BBC)
How long will the 2020 recession last?
In short, no one knows.
While recession is something you can anticipate, it isn’t something you can predict along a strict timescale, as SOOO many factors influence its length. Unemployment rates, the average wage, the rate at which people acquire debt, the amount of new business start-ups and so on. These are just a few examples of factors that affect a country’s economic growth rate – i.e. the severity of a recession. All of which makes recessions largely unpredictable and the word itself a daunting thought for most of us.
Impacts of Recession 2020
The impacts of the 2020 recession could differ dramatically from a ‘conventional’ economic recession due to the coronavirus outbreak. Here are some of the impacts of Recession 2020 that we think you should be particularly aware of…
The 2020 recession & job loss
Unfortunately, the economic turmoil caused by Covid-19 has already turned a lot of employees into job seekers. Between March and July, the number of people claiming unemployment benefit reached 2.7 million (The Office of National Statistics). This is due to a multitude of factors – the most common being a sharp drop in demand. In turn, companies have either being forced to file for bankruptcy or reduce their expenses by making redundancies.
It’s worth noting that full extent of the impacts on jobs are yet to be seen, with millions still on furlough pay, awaiting their fate. Couple this with 2020 recession and we could see a very dire jobs market in the near future.
Recession 2020 & travel restrictions
For frequent jet setters, Covid-19 has been a significant hurdle. Flights have been cancelled, countries have been deemed off limits and many airlines have tipped over the verge of bankruptcy. At the beginning of May, the aviation consultant, CAPA, warned that ‘most’ of the world’s airlines could go bankrupt if strict travel restrictions were to remain in place.
Over 20 airlines across the globe have gone bankrupt since the coronavirus outbreak including Air Italy, Avianca (Columbia) and Compass Airlines (United States) – in the UK, Flybe was the main casualty. Factor in Recession 2020 and it's likley that the aviation industry will have to adjust significantly, not only ensure that flights are safe, but also that they remain profitable.
The 2020 recession & the high street
Covid-19 has hit the high street hard. Footfall fell 78% in the period between 14th & 20th June in the UK - a sign that we're likley to see high street decline. But that’s not to say brands themselves aren’t doing well.
With the shift in consumer habits, online sales rocketed during the pandemic. Ask us and the popularity of online shopping is likely to continue through the 2020 recession. In the eyes of retailers, it's not only cheaper (no council tax to pay, requires far less staff, cuts logistics costs etc.), but it also opens themselves up to a far wider audience. Equally for the customer, it's a timesaver, requires minimal effort and allows them to purchase globally at whatever time of day suits them. Cutting costs and a larger customer base - all crucial aspects for any business looking to survive a recession.
Recession 2020 & pharmaceuticals
With such a large opportunity at stake for the company who engineers the Covid vaccine, the pharmaceuticals industry has taken centre stage, experiencing substantial growth. Don’t believe us? The share price for AstraZeneca hit record highs over lockdown, as the drug company announced that it could produce over two billion doses of the vaccine.
It’s worth remembering that the coronavirus outbreak hasn’t been bad for all industries. Pharmaceuticals, healthcare, and even the takeaway meal market have benefited substantially from the growth in demand brought about by the pandemic. Growth that should see them survive the 2020 recession and if anything, grow from it.
The 2020 Recession & the stock market
And speaking of shares, stocks are another impact of recession that it’s worth watching out for. During times of recession stocks fluctuate (typically down) as factors like profits and GDP cause their values to differ. The FTSE100 for instance, hit its lowest point in March – down by over 30% - but has gradually began to rise since Covid restrictions were eased.
TOP TIP: For those looking to get on the housing ladder to make use of the Stamp Duty Holiday, investing now while the majority of market is down could prove a great way to scrape together a deposit.
How could the 2020 Recession affect the UK housing market?
(Our 2020 recession prediction)
With any recession, one of the most speculated factors is the housing market. After all, for the majority of people their property is where they hold the most equity, so it’s no surprise that it's a hot topic. Discover our take on this issue below...
There’s no denying that in the short term the market is looking healthy, especially when you consider the current financial climate. As the property industry resumed business as normal in June, there’s been a flood of buyers and sellers, all eager to move thanks to the government’s Stamp Duty Holiday.
And while at the moment this is great news for buyers and sellers alike, it's important to recognise how this could change if the UK falls deeper into recession.
We like to think of the Stamp Duty Holiday as not so much a solution to the market's condition, but more as a softening measure, designed to keep the market (and economy) buoyant for the initial period after lockdown. It's only once the holiday ends on March 31st 2021 that we'll begin to see the full impacts of recession on the UK's housing market, as buyers and sellers become far less motivated.
Although, it's worth noting that this won't happen instantly - the majority of markets (especially the housing market) doesn't just plummet overnight. Cast your mind back to the 2008 financial crash and it was only in 2009 and onwards that full impact of the crash really became clear.
Post March 31st will be an interesting time for the housing market, as it's condition to a large extent will depend on the rate of economic recovery at this point. As mentioned above, Recession 2020 has seen the UK GDP slump over 20%, which when you consider during the 2008 crash, GDP dropped just below 6%, is quite a fall. Three times as large in fact! Factor in that back then, house prices saw a drop of 16% (The Guardian) and it's highly likely that we could witness a similar, if not larger drop during the 2020 recession.
Although, it's worth baring in mind that GDP shrunk 20% when the UK ground to a halt, so that the recovery rate once the country gets back up and running should be sharp. For instance, since restrictions alone were loosened in June, GDP recovered by 8.7%! So if you ask us, come March 31st and GDP will have recovered to a similar level than what it was during the 2008 financial crash.
So, if due to the current climate you're looking to sell up and move on while the affects of the 2020 recession are mild and the property market remains buoyant, we may be able to help
As one of the UK's most trusted cash buyers of property, we'll buy your home in as little as 7 days! Yes, we're serious. No waiting around for a buyer on the open market, no pestering your solicitor or paying out for survey fees. We'll do everything for you all under one roof.