What Has Just Happened?
Coronavirus has had a lasting impact on every facet of the United Kingdom’s economy, not least the housing market. A regional reduction in property prices coupled with diminished transaction levels has led to heedful property surveyors producing cautious property estimates. This can be largely contributed to an industry fear of over-valuation and a lack of post-COVID housing market data.
Furthermore, social distancing measures limited the practicality of physical property surveys and led to a greater reliance on computer algorithms. Naturally, this raised concerns of inaccuracy and the system’s inability to provide a contemporaneous understanding of the market.
To put the consequences of this into perspective, prior to coronavirus there were approximately 100,000 property transactions a month in the United Kingdom. In April 2020, as we approached peak hospitalisations, there were 41,960.[1]
What Does It Mean?
Property surveyors are employed by mortgage-lenders to value the property and ensure that the lender is entering an economically viable deal. In essence, they determine whether the true value of the property is in line with the agreed sales price.
Consequently, if mortgage lenders believe that falling housing prices would cause the borrower to enter negative equity (i.e when the market value of a property falls below the outstanding amount of a mortgage secured on it), they may withdraw their lending offer. This contributes to a fluctuating and uncertain market, whilst reducing property affordability for prospective buyers.
How Does This Affect the Legal Industry?
Due to the lack of post-COVID market data, the valuations of property surveyors may now dictate the market for the foreseeable future and if, as the above analysis indicates, there is a rise in down valuations then prospective sellers will be disincentivized to enter the market. Logically, this reduces the volume of work required for law firms with private property transaction expertise.
Furthermore, real estate lawyers will be encouraged to renegotiate any sales prices agreed upon during lockdown as the market value of the property may too have dropped. This will have additional consequences on the dampening of the housing market and exaggerate the fall in private property transactions.
The key legal ramification is the reduction in transactions, which is emphasised by the increased difficulty of obtaining a mortgage. Simply put, there is a diminishing need for lawyers concerned with private property transactions in the current climate and it is unclear when this will return to the status quo.
Written by Dominic White
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#CliffordChance #Freshfields #BoodleHatfield #CharlesRussellSpeechlys #MisconDeReya #AddleshawGoddard #PinsentMasons #CapitalLaw #BurgessSalmon
Reference:
[1] The Telegraph, “Property purchases collapse as surveyors issue lower house price valuations”, Adam Williams (https://www.telegraph.co.uk/property/uk/property-purchases-collapse-surveyors-issue-lower-house-price/)
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.