The property market may take five years to recover from a Covid-19 induced recession, Sourced Capital has predicted.
The property market could see a double-digit rate of property value decline and the number of property repossessions to soar, the peer-to-peer lender said.
Currently, the market has ground to a halt as both buyers and sellers remain unable to transact due to government-imposed restrictions and while it is unclear as to how this will hit the housing market, there are wider fears that a recession is on the horizon.
Sourced Capital analysed data from previous recessions and found that the economic downturn in the early 1990s and the 2009-9 financial crisis both lasted five quarters. It took about five years for property prices to recover after each crash, the research found.
“The current state of the market may bring cause for concern to many but at present, it sits in limbo and any impact of the current pandemic will be easily rectified once normality returns,” said Stephen Moss, founder and managing director of Sourced Capital.
“However, the real worry is that any prolonged period of national lockdown could bring about a recession and it is at this point the market could begin to struggle.
“We know from market data on previous recessions that such an event will cause property prices to drop and with current market conditions and values most similar to that of the previous recession, this could mean a drop of ten per cent and upwards.
“Not only this, but those taking such a hit will be looking at a lengthy recovery time before their property regains its current value, a recovery that could stretch until 2025.
“That said, a decline in property values would be the preferable option when you consider that for tens of thousands of homeowners, the reality could be the repossession of their home.”
Moss said that with uncertainty and fears around the pandemic impact on the property market are rife, with many investors turning to P2P lending platforms for a safer option when investing.
“Not only do they generally offer a higher annual return when compared to most property investment options, but they also allow a lower risk in terms of the sum of money invested, as well as the opportunity to diversify across a number of sectors and options,” he said.