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Has the pandemic created a two-track housing market?

3 December 2020: Writing for ICAEW’s Financial Services Faculty, Laura Miller looks at the effect of the pandemic on the housing market.

Evidence is growing that COVID-19 is creating a two-track housing market, where the wealthy grab more space and poorer potential buyers are shut out.

White-collar property owners who can work from home are choosing quality of life over commuting and helping to drive increases in prices that now make the average home cost just short of £250,000. 

As sales of £1m-plus homes jump 105%, at the other end of the market half of first-time buyers report being turned down for a mortgage. “It’s a dire time to be a first-time buyer needing a mortgage,” says Bankrate UK’s Nisha Vaidya. 

Pre-COVID housing affordability problems are being aggravated by employment insecurity brought on by the pandemic, with 1.5 million COVID jobless, 1.2 million on furlough, and millions expected to join them next year.

As various forbearances end in October there will be “a further hit to incomes, then arrears and problem debt rise, affecting ability to access affordable credit, including mortgages” says Mick McAteer, founder and co-director of The Financial Inclusion Centre, a not-for-profit policy group.

“There is a two-track society developing,” he says, “a two-track housing market appears to be emerging too. COVID-19 is likely to seriously exacerbate this.”

Professional worker flight

Those who can afford to are buying bigger properties in more newly desirable work from home locations. The e.Surv/Acadata House Price Index report for August shows six London boroughs at record price levels in July — but all in the more spacious suburbs: Brent, Kingston-upon-Thames, Bromley, Waltham Forest, Croydon and Bexley. 

Prices in inner London boroughs have tumbled — City of Westminster -9.6%, Camden -15.8%, Newham -11.8% and Hackney -12.6%. 

“It suggests many people moving out of the inner city into the suburbs,” says Mike Scott, chief analyst at online estate agents Yopa.

Growing divide

David Westgate, group chief executive at Andrews Property Group, reports a flow of enquiries from buyers relocating from major towns to rural areas, with no care for train stations with links to cities like London. 

“With no need to travel into work every day, people are choosing quality of life,” he says, referring to more affluent white-collar workers who can work remotely. 

“Those on lower incomes, many working manual jobs, are trapped, working from home is not an option,” he says, “and this difference could well be leading to a two-track society”.

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