Three-tier lockdown: what do the new coronavirus measures mean for the property market?
We explain the government's rating system and what it means if you’re trying to buy or sell a home this winter.
Parts of England have been plunged back into lockdown after Prime Minister Boris Johnson announced new measures to help combat the coronavirus pandemic.
The government is adopting a simplified three-tier system, under which restrictions will apply on a local basis according to the severity of Covid-19 outbreaks.
The move comes as the property market enjoys a strong rebound with solid price growth as buyer demand, which built up during lockdown, continues to work its way through the system.
Under the government’s new advice, estate agents remain open and physical property viewings are still allowed across England, with a strict bookings process in place and comprehensive advice on how to follow social distancing guidelines inside properties.
However, the rules are different in Wales where a nationwide lockdown is being introduced from Friday, which will effectively shut the property market for two weeks (more on which, below).
While the latest lockdown measures may make viewing properties more difficult in some areas of England, they are unlikely to dent the current high level of interest from potential buyers.
Richard Donnell, our head of research and insights, said: “We’ve already seen how lockdown led to people carrying out a once-in-a-lifetime re-evaluation of their homes and lifestyles, with a focus on prioritising space. And the latest restrictions will continue to support this trend – particularly for those who are more financially secure.”
Meanwhile, the stamp duty holiday is continuing to act as an incentive for buyers to complete a purchase before it comes to an end on 31 March 2021.
As a result, if you want to sell your home, the current measures are unlikely to deter potential buyers.
The governments in England and Scotland are encouraging the use of virtual viewings before visiting properties in person in order to minimise public health risks, and socially distant viewings will continue to be the norm.
However, as of this weekend it will not be possible to view properties in Wales for the duration of a two-week "firebreak lockdown".
What the different tiers mean:
Tier 1 - medium alert
In tier one areas all businesses and venues can continue to operate in a Covid-secure way, other than those that are currently closed by law, such as nightclubs.
Schools, universities and places of worship can remain open, and indoor sport and exercise classes can continue to take place. People must not meet in groups of more than six either indoors or outdoors.
Property viewings can continue to take place as long as anti-coronavirus measures are taken and there are no more than six people in the property at one time.
Such measures include the wearing of face coverings, regular hand washing, keeping doors and windows open for good ventilation during the viewing, and only two prospective buyers from the same household entering the property at a time.
Open house viewings are not allowed at this time.
If any member of either the household being viewed, or the household viewing, shows symptoms of Covid-19 or is self-isolating, then an in-person viewing should be delayed.
Most areas of England currently fall into this tier.
Tier 2 – high alert
Anyone living in a tier two area must follow all of the tier one rules, and also not meet with anybody outside of their household or support bubble in any indoor setting, including their home or a public place.
However, the current government advice states that in-person property viewings can still take place, with appropriate precautions. For the latest government advice in full check here.
Nevertheless, the ban on meeting people outside of your household or support bubble indoors means that some buyers or sellers may decide to suspend property viewings or only undertake them virtually.
Areas that fall into this tier currently include parts of Cheshire, Warrington, West Yorkshire, South Yorkshire, the North East, Tees Valley, West Midlands, Leicester and Nottingham.
London, Essex, Elmbridge, Barrow in Furness, York, North East Derbyshire, Chesterfield and Erewash are the latest regions to be placed in tier two.
Coventry will move into tier two from midnight on the 23 October.
Tier 3 – very high alert
Tier three is reserved for areas where transmission rates of Covid-19 are causing the greatest concern.
People living in these areas are not allowed to meet anybody outside of their household or support bubble in an indoor or outdoor setting, apart from open public spaces such as parks and beaches, where the rule of six will still apply.
People are also advised not to travel in and out of these areas, other than for work, education, accessing youth services or caring responsibilities.
Restrictions in this tier are likely to have the biggest impact on the property market.
Although government guidelines don’t currently state that in-person viewings are banned in tier three regions, it can be assumed that in many cases estate agents, sellers and buyers will decide against going to see properties while restrictions are in place, unless they have no other option.
That said, renewed lockdown measures may also heighten people’s desire to move if they are unhappy with their current accommodation.
In England, tier three currently applies to Liverpool and the surrounding area, where the housing market is currently on a strong footing with price growth driven by rising demand of 3.4% recorded in the year to the end of September.
Lancashire was the second region to be placed in tier three.
Greater Manchester has now had tier-three restrictions imposed upon it despite an agreement failing to be reached between local government leaders and Westminster. Restrictions will come into force on Thursday 22 of October.
South Yorkshire will move into tier three from Saturday 24 October. The area is comprised of Barnsley, Doncaster, Rotherham and Sheffield.
Other areas currently in discussion with the government about entering tier three include West Yorkshire, Nottingham, the North East and Teesside, but no agreements have yet been reached.
What about Scotland and Wales?
Scotland introduced a raft of short-term new anti-coronavirus measures which started on 9 October and will run until 26 October.
They include not meeting people outside of your extended household in their home or inviting them to yours, and not gathering in groups larger than six people or from more than two households outdoors.
Indoor pubs and restaurants can only be open between 6am and 6pm and they cannot service alcohol, although outdoor ones can stay open until 10pm and can serve alcohol.
The rules apply to the whole of Scotland, with some additional measures also put in place across the central belt.
The Scottish government’s guidance on property viewings emphasises a virtual-first approach. This means in-person property viewings are permitted, but it is recommended that you view properties virtually in the first instance if possible and only proceed to a physical viewing if you are interested in offering on the property.
First minister Nicola Sturgeon this week announced a new five-tier system would come into force in Scotland on 2 November. The tiers two to four will largely match the English system, with tier one for lower risk areas and tier five imposing even tougher restrictions.
The Welsh government is introducing a nationwide "firebreak lockdown" from the end of this week. This means that a series of restrictive measures will be in place from 6pm Friday 23 October until the start of Monday 9 November 2020- and this includes the closure of estate agencies for this two-week period.
Property viewings are not permitted during this period. However, if you are moving home and cannot change the date of moving, then removals and other services required for moving home are permitted, but should be avoided if possible.
Up until the latest national lockdown, advice from the Welsh government has been that in-person viewings can still take place, also with an emphasis on virtual viewings in the first instance and strict guidelines for conducting viewings Covid-securely.
What do the new measures mean for estate agents?
Mark Hayward, chief executive, NAEA Propertymark comments: “The new three tier Covid restriction approach has not changed the guidance for estate agents.
Mortgage availability drops to 10-year low as Covid-19 makes lenders cautious
The number of home loans on offer has halved as banks tighten their lending criteria in the wake of the coronavirus pandemic.
The number of mortgages available for buyers to choose from has fallen to the lowest level since 2010.
A total of 2,259 mortgages are now available – that’s less than half the number that was on offer in October last year, according to Moneyfacts.
Average interest rates on mortgages have also risen for the third month running, although the typical cost of a two-year and five-year fixed rate deal is still lower than it was in March.
Meanwhile, the Bank of England’s Credit Conditions Survey showed that banks and building societies had tightened their lending criteria for mortgages between July and September, with further tightening expected in the next three months.
Why is this happening?
The coronavirus pandemic along with its associated lockdowns and job losses has made lenders more cautious.
They are also bracing themselves for a rise in repayment arrears in the coming months as mortgage payment holidays come to an end.
Banks and building societies have reviewed and streamlined their mortgage ranges, as well as become pickier about who they lend to.
At the same time, they are taking the opportunity to increase their margins - the difference between the rate they borrow money at and the rate they charge customers – to make mortgages more profitable.
Who does it affect?
First-time buyers have been particularly hard-hit by lenders reassessing their mortgage ranges, with many deals for borrowers with small deposits having been pulled from the market.
In October, the number of mortgages for buyers with a 5% deposit fell to just 12, compared with 391 in March.
Meanwhile, there are now 51 mortgages for people with a 10% deposit - down from 779 seven months ago.
But lenders are not just pulling loans for buyers borrowing a high proportion of their home’s value.
The number of different deals available has fallen in all but two loan-to-value (LTV) brackets, including the 60% one, which is usually the tier lenders reserve their most competitive rates for.
What’s the background?
Despite tightening their lending criteria, banks and building societies are still very much open for business, as evidenced by the number of mortgages approved for house purchase reaching a 13-year high in August.
In fact, the Bank of England survey showed that although there is now less product choice, lenders actually increased the funds they had available for mortgage lending during the third quarter and they do not plan to restrict lending levels in the final part of the year.
But despite banks and building societies typically launching their most competitive deals between October and December, as they look to meet their annual lending targets, this year they expect to further increase the interest rates they charge on mortgages.
Top three takeaways
- Mortgage availability has dropped to the lowest level since 2010
- The number of mortgages available is also less than half the number that was on offer a year ago
- Lenders have tightened their credit criteria – and further tightening is expected in the coming three month.
Nearly a third of landlords plan to sell properties in the coming year
The coronavirus pandemic has hit the buy-to-let sector hard, leading to an estimated £437m in rent arrears.
Twice as many landlords are planning to sell properties as those who are looking to expand their portfolios over the coming year, following a steep rise in rent arrears caused by the coronavirus pandemic.
Three out of 10 private sector landlords plan to sell one or more properties, compared with 16% who expect to buy at least one more in the next 12 months.
This is despite the fact that 35% of buy-to-let investors said they had seen increased tenant demand during the past three months, according to the National Residential Landlords Association (NRLA).
Unsurprisingly, nearly two-thirds of landlords said their businesses had been negatively impacted by Covid-19, with 18% saying the pandemic had had a significant negative impact on it.
Why is this happening?
The pandemic, lockdown and the resulting negative impact on jobs and earnings has led to a steep increase in the number of tenants who have fallen behind on their rental payments.
The NRLA estimates that private sector rent arrears in England as a result of coronavirus stand at £437m.
This increase in rent arrears, combined with rising costs as a result of regulatory and tax changes, has made the sector less profitable, leading many landlords to review their portfolios and sell properties.
Who does it affect?
The fact that nearly a third of landlords are planning to sell properties is bad news for tenants in the private rental sector.
There is already a mismatch between supply and demand, and a further reduction in the number of properties available to let is likely to drive rents higher.
What’s the background?
Landlords are calling on the government to help tenants in England who have fallen behind with their rent.
Suggestions include offering interest-free or low-cost hardship loans to cover arrears, similar to those available in Wales and Scotland.
Currently, if landlords are struggling to pay mortgages because their tenants are in financial difficulties, they can apply for a mortgage payment holiday of up to three months, with the interest they would have paid added to their outstanding debt.
Landlords are advised to try to work with their tenants to establish an affordable repayment plan for any rental arrears once the tenant’s finances have improved.
Landlords are also advised to ask their tenants if there are any benefits they may be entitled to that they are not currently claiming. For example, Universal Credit and Housing Benefit have been increased since the start of the pandemic to cover at least 30% of market rents in the claimant’s local area.
The ban on tenant evictions has also now been lifted, although landlords still have to give tenants six months’ notice in the majority of cases.
Top three takeaways
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Three out of 10 private sector landlords said they planned to sell one or more properties during the coming year, compared with 16% who expect to buy one
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The selloff comes despite 35% of landlords seeing increased tenant demand during the past three months
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Nearly two-thirds of landlords said their business had been negatively impacted by the coronavirus pandemic, with 18% saying it had had a significant negative impact on it.
Bank of England eyes negative interest rates: what it could mean for you
The Bank of England has written to UK banks asking them to prepare for zero or negative interest rates. We look at what this might mean for borrowers.
As the Bank of England explores the possibility of introducing negative interest rates, we take a look at the impact such a move would have on people taking out mortgages.
What’s happening?
The Bank of England’s Monetary Policy Committee is exploring how negative interest rates could be implemented.
Such a move would mean entering a ‘topsy-turvy’ world in which institutions are charged for depositing cash with the Bank instead of being paid interest on it.
The Bank has recently written to the UK’s banks asking them what steps they would need to take to be ready for the introduction of negative interest rates.
Despite this flurry of activity, the Bank has been at pains to stress that it is currently only considering negative interest rates as part of its “policy toolkit”.
It is expected to put in place other measures to support the economy before taking the drastic step of introducing negative interest rates.
Even so, markets have priced in a possible move to negative rates in the spring of next year.
What does this actually mean?
Negative interest rates mean that instead of the Bank paying commercial banks interest on the money they deposit with it, it would instead charge them money.
So, for the sake of argument, if the base rate was cut from its current level of 0.1% to -0.1%, instead of earning interest of 0.1% on their deposits, commercial banks would be charged interest of 0.1% by the Bank.
Such a move would potentially impact consumers as high street banks base the interest they pay on savings accounts and charge on certain mortgages on the Bank’s base rate.
Why is the Bank of England considering taking rates below zero?
The theory is that charging banks to deposit money encourages them to lend money to businesses and consumers, rather than hold it in reserve.
The easier and cheaper it is for businesses to borrow money, the more likely they are to do so.
The way they spend this money, such as investing in new machinery or expanding their businesses, helps to boost the economy and support employment.
What impact could it have on consumers?
While negative interest rates will have an impact on borrowing costs, it is highly unlikely that customers will be paid by their bank to borrow money.
People with fixed rate mortgages will not see any impact on their monthly repayments, as these are set for the term of the mortgage.
Those with tracker deals, which move up and down in line with the Bank’s base rate, could see a drop in their repayments but are unlikely to not be charged any interest at all.
The reason for this is that trackers charge interest at a set percentage, such as 1%, above the base rate, meaning the base rate would need to be deep into negative territory before mortgage rates followed suit.
Many tracker deals also include clauses, known as collars, stating that the interest charged will never fall below a certain level.
There has only been one case of mortgage customers receiving negative interest rates, which occurred in 2019 when Danish lender Jyske Bank offered a rate of -0.5% a year.
Even then, borrowers were not paid by the bank, with it instead reducing their outstanding mortgage debt each month by more than the amount they repaid.
While borrowers in the UK are unlikely to benefit from a similar scenario, negative interest rates are still likely to lead to lower mortgage rates.
The news is less good for savers, who are likely to earn lower interest or even no interest on the money they have deposited with banks.
But it is unlikely most consumers will have to pay to keep their savings in an account, with banks expected to limit charges on deposits to large corporations and very wealthy individuals.
What knock-on effect could it have on the housing market?
As a general rule, low borrowing costs support the housing market by making it cheaper for buyers to borrow larger sums.
With the UK already facing a mismatch between the supply of homes and demand for them, lower borrowing costs are likely to lead to higher house prices.
That said, the Bank is considering introducing negative interest rates because the coronavirus pandemic has created an extraordinary economic situation, so any boost to the housing market may be tempered by lower consumer confidence and rising unemployment.
When was the last time we had negative interest rates?
In its 326-year history, the Bank has never previously introduced negative interest rates.
But central banks in Europe and Japan have had them in place for some time.