A lot of commentators on the UK property market have suggested that there is latent demand (since buyers are not able to purchase) which is waiting to be unleashed – this means that there is almost like a dam in place and once it is reopened the flood of transactions will resurrect the market.

There are a number of things to be wary of with this assumption – one is that everybody who was previously interested in purchasing property is 1) still interested 2) still able. With the same applying to anyone wanting to sell a property.

A market crash in finance is not like any other sale – buyers usually run away from it instead of towards it – but this is not always because they are scared. Sellers may decide to wait out the drop in value and defer their planned sale to a future date – so the home you were wanting to buy is no longer for sale.

Demand for a product or service that a consumer cannot satisfy because they do not have enough money, because the product or service is not available, or because they do not know that it is available

Latent Demand; Definition from Cambridge Dictionary

So lets examine each type of buyer individually to see why they would NOT be buying property in the immediate future:

First Time Buyers:

This group of buyers usually lends at a higher rate as they may have found it difficult to raise a deposit so would need a higher LTV or access to a help to buy scheme etc. Lenders will need to be confident in the market values in order to lend at the higher LTV rates. This should not be an issue at what may be the bottom of the market – since there would be an expectation for values to at least rise in the future back to pre-lockdown levels.

Alternatively they may be looking to obtain a gifted deposit from parents or grandparents. Has the amount of this gift remained unaffected by the drop in the stock market? If so this would move people out of the market.

With potentially fewer properties to choose from, the demand is likely to be sufficient to fill this gap and hopefully confidence.

My expectation:

The first time buyers will most likely be younger and either be out of work / suffer a short lapse of employment in between the government grants stopping and demand in the market increasing. This will mean they eat into their deposits / savings.

The above will create friction – along with lenders tightening the purse strings – to squeeze this segment of the market out. Demand from first time buyers may not return for some months.

Government intervention is required here; firstly for a relaxation in the stamp duty (which would save 3% for most first time buyers of the average home in the UK) – but also an increase provision in the help to buy scheme. This would help businesses involved in property sales and help bring more buyers into the market through increased confidence. This is in addition to the reduction in base rates (it remains to be seen if lenders will pass this onto new purchases on their fixed rate products).

Next – I’ll be looking at sellers of property and investors…