It probably came as no surprise to most people that the UK is now officially in recession for the first time in 11 years. After battling to keep the economy afloat since January — when the first case of COVID-19 in the UK was confirmed — Chancellor Rishi Sunak announced on Wednesday the 12th of August that the economy has shrunk 20.4% compared to the first three months of the year.
But what is a recession and what does it mean for homeowners who want to sell?
What Is a Recession?
A recession is when the economy shrinks for two consecutive quarters (three-month periods). Gross domestic product (GDP) fell 2.2% between January and March and a whopping 20% between April and June, putting us firmly within this definition. The last time a recession hit the UK was during the global financial crisis, which started in 2007 and lasted for over a year.
Recession strikes fear into the hearts of many people as it can have a serious impact on all aspects of daily life — from job prospects and earnings to savings and mortgage repayments.
What Will a Recession Mean for the Housing Market?
A recession often slows the housing market as fewer people can afford to buy and the instability of the economy makes selling or buying seem risky. Many people will lose their jobs or have their hours reduced, making it impossible for them to secure the finance they need to buy a property.
Mortgage providers are likely to impose stricter lending criteria to protect themselves against risk, so fewer buyers will be able to get a loan approved for purchasing a home.
It’s not all doom and gloom. If prices fall, as they tend to during a recession, first time and cash buyers may be able to pick up a bargain. However, this depends on the buyer’s eligibility to secure the finance they need from increasingly risk-averse mortgage lenders. Homeowners who need to sell before they can buy will find it harder to benefit from lower prices as their property will reduce in value too.
What Can You Do If You Need to Sell during a Recession?
If biding your time until the economy recovers is not an option, it is possible to sell your house during a recession.
The current coronavirus pandemic places us in a unique situation. The housing market was shut down in March, along with every other business, in a bid to stop the virus from spreading. In May, the government began to gradually ease lockdown rules and property sales quickly recovered to pre-lockdown levels.
However, buyers’ tastes have changed. An increasing number of people are seeking properties further away from town and city centres and there is a growing demand for outside spaces and home offices. Properties that fit these current trends will be easier to sell during the recession.
Whatever type of property you own, there are a few things to consider if you want to sell during a recession:
- Do you own a desirable property?
Some properties are eternally desirable due to their location or unique character. Even in a recession, these homes will sell. Also, consider whether your home has recently become more desirable due to changes in buyer trends — do you live in a rural location away from the city? Do you have a large garden or an office space?
- Are you willing and able to compromise on price?
There’s a good chance the value of your home will dip. Can you afford to accept less for your property, or would you rather wait until the market picks up?
For homeowners who need to sell quickly, this may be a more important consideration than how much the final sale figure is. If you struggle to sell your home as the market slows down, it’s worth considering a cash house buyer service. A reputable house buying company will have the funds to buy your house for cash and can offer completion in as little as seven days after a formal offer is made. The sale is guaranteed and there’s no risk of a broken house chain.
- Do you have a place to move to?
Finding a home to buy may be just as difficult as selling during a recession because homeowners will be more reluctant to put their properties on the market. Do you have family you can stay with if you sell before finding a new home to buy? Is the rental market buoyant near you?
- Can you cope with the stress?
The UK housing market is somewhat notorious for its slow sales process. Before lockdown and the recession, the average time to sell a house was over four months and almost half of all sales fell through before completion.
Due to difficulties securing mortgages, economic uncertainty and low buyer confidence, you can expect these figures to increase during the recession. Do you have the time, patience and emotional resilience to cope with delays and buyers who may drop out partway through the process?
It is perfectly possible to sell a property during a recession. Whether it’s a good idea, only you can decide. Your circumstances may dictate that a quick sale is more important than waiting for the price to rise. Or you may own a property that is bang on trend and will sell easily. Consider your options and decide what’s right for you.