As the first coronavirus lockdown in March functioned as a precursor for the current housing sector slowdown, the industry continues to recover from the seven-week market shutdown – now overshadowed by the second national lockdown. As the housing market thaws from the long-term freeze which lasted nearly two months, the construction sector was also hard hit by the domino effect which followed, as Jonathan Munnery, Partner at Begbies Traynor Group, explains here.
As the second national lockdown tightens its grip around the country to protect public health and mitigate the spread of coronavirus (Covid-19), the housing market is exempt from closure to prevent it from falling back into dormancy. As the government allows for property sales to continue during the second lockdown, this functions as a green light to the construction sector to continue fulfilling projects to feed pent up demand. The snowball effect of the March 2020 lockdown resulted in aspects of the construction sector to be disabled due to the change in consumer behaviour and market conditions, such as:
Withdrawal of high LTV mortgage products
In response to economic uncertainty, mainstream lenders withdrew competitive mortgage products from the market, significantly reducing finance options to prospective homebuyers. As high loan-to-value (LTV) products continue to be excluded from the market, younger savers with smaller deposits are being forced to revert to step one to raise a larger deposit or delay plans until lenders regain the confidence to return these products to the market.
As new-build homes actively attract first-time buyers by offering small discounts and packaging the opportunity as a starter home for growing families, the construction sector is largely dependent on first-time buyers to generate steady tranches of income from the sale of new plots. As key mortgage products become unavailable, this slows down the flow of income which fuels the construction process and offers security.
As accessing affordable finance for new homeowners becomes a lucky find, the sector is experiencing less uptake on housing from this demographic. As the nature of new builds requires prospective homeowners to select interiors during the construction stage, a longer mortgage process could create a chain delay and function as a deterrent for new buyers, contractors and developers.
Chain delays due to Covid-19 disruption
In addition to the withdrawal of competitive mortgage products, the backlog created following the release of demand from the first lockdown continues to push down on lender capacity. As the average timeframe for mortgage applications stretches from two weeks to over three months, the housing sector is experiencing a severe slowdown of operations, impacting completion dates. As the UK enters into a second lockdown and workforces are restructured and rotated to mitigate the transmission of the virus, lenders are buckling by the weight of overdue applications, creating a delay to the early stages of the house buying process, impacting anticipated move-in dates.
Although the housing sector is classed as an essential industry, construction workers are being affected by the ongoing pandemic due to site closures to protect staff. As developers grow impatient to exchange contracts to confirm sales, cash flow is likely to take a hit.
Unprecedented demand and house price shake-up
As suppressed demand for new housing over the seven-week lockdown period releases and sales and marketing suites slowly reopen, Zoopla and Rightmove claims to have witnessed a peak in interest since the first lockdown announcement. As the overall demand for new housing increases by different demographics, typically reigned by first time buyers, house prices are fluctuating, soaring at the highest rate since 2016 to compete with the sudden rush of interest.
As both sectors experience unprecedented trading conditions, the forefront concern for both industries is to protect staff from the virus, minimise expenditure to mirror consumer demand and resume the recovery process. As the housing sector adapts to operating at a slower rate due to the national lockdown, it continues to engineer efficiency to speed up the home buying process, in turn – minimising the impact to the construction industry.