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The housing market has come a long way since the country entered its first lockdown more than a year ago.

In mid-May last year the housing secretary lifted the freeze on home moves in England – which for seven weeks had been prohibited unless “reasonably necessary” – with Scotland and Wales following a month later.

After the chancellor announced a stamp duty cut in July to “catalyse the housing market and boost confidence”, the market has seen average house prices and mortgage borrowing hit record highs.

But how will the market fare when the current stamp duty holiday ends on June 30?

April slowdown

Statistics show a fall in mortgage borrowing and transactions in the month after the stamp duty holiday was originally due to end.

The latest figures from the Bank of England show mortgage borrowing fell in April, with net borrowing at £3.3bn – down from the record of £11.5bn in the previous month, and lower than the monthly average of £5.7bn borrowed in the six months to February.

And provisional figures from HM Revenue & Customs show residential property transactions dropped to an estimated 111,260 in April, down by more than a third from 173,410 in March (non-seasonally adjusted).

House prices, meanwhile, rose in April, with Nationwide’s index showing prices were up by 2.1 per cent month-on-month, to reach an average of £238,831.

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The building society’s chief economist, Robert Gardner, says the extended tax relief prompted a “re-acceleration” in April, after the previous month saw a slowdown in house price growth in view of the original stamp duty holiday deadline.

However, Tim Bannister, property expert at Rightmove, expects market activity to remain strong for at least the rest of the year, despite the tapering and end of the stamp duty holiday in June and September.

Bannister says: “Right now many of the homes in the huge pipeline going through will not be expecting to make the June stamp duty deadline.”

Homebuyers who miss the June deadline for the stamp duty holiday will see the tax kick in above £250,000 of the property price until the end of September, in place of the current nil rate band of £500,000.

However, last month, a survey of more than 1,000 homebuyers by estate agent Barrows and Forrester revealed four in five (81 per cent) said they expected to miss the September deadline for the £250,000 threshold.

Coming out of lockdown

John Phillips, national operations director at estate agency group Spicerhaart, says the reopening of the hospitality and travel industries will have a greater impact on the market than the end of the stamp duty holiday.

Phillips says: “Buying a house will still be a priority for many, but there will be lots of people booking holidays after a year stuck in the UK and savings may be spent on a few weeks in the sun. This may result in a few people deciding to put a purchase on hold as the UK reopens fully.

“The slight dip in buyers will reduce the rate that house prices are increasing. However, this is a positive for the market, as the record increases were unsustainable long-term.”

Nationwide’s latest index shows annual house price growth reached a double figure of 10.9 per cent in May, the highest level recorded since August 2014.

Right now many of the homes in the huge pipeline going through will not be expecting to make the June stamp duty deadline.

Tim Bannister

Buying agent Henry Pryor also says a predicted increase in supply will help to moderate prices.

A record one in three properties (32 per cent) sold for more than the original asking price in April, according to NAEA Propertymark, compared to the previous record of 19 per cent in May 2014.

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Pryor says: “I expect supply to pick up as people start to be more confident about having strangers around their home. This will provide more choice for those wanting to buy and act as a slight dampener on prices.”

Although the housing market has remained open throughout subsequent lockdowns, government advice on moving home in England, for example, recommends homeowners vacate their property during viewings to minimise unnecessary contact.

Meanwhile, government figures show three-quarters of the adult population have had their first Covid-19 vaccine as of June 1.

Beth Rudolf, director of delivery at the Conveyancing Association, also says prices may experience a short-term “blip”, as more properties come onto the market when Covid restrictions are fully lifted and demand drops with the tapering of the stamp duty holiday.

Rudolf added: “As people decide to move to suit their new working arrangements, we might also expect more supply.”

Demand for space to continue

A survey of employers from professional body CIPD found two-thirds (63 per cent) planned to introduce or expand the use of hybrid working, as working from home became more commonplace last year.

Phillips says: “The shift to homeworking has increased the need for an extra bedroom to use as a study, or a garden to build an office in.

“There’s also been a trend away from city centres. Without the need to live in commutable distance from the office, people are moving to larger properties away from the often more expensive cities.”

Indeed, research from Nationwide in April found seven in 10 homeowners (68 per cent) would still be moving, or considering a move, if the stamp duty holiday had not been extended.

Buying a house will still be a priority for many, but there will be lots of people booking holidays after a year stuck in the UK and savings may be spent on a few weeks in the sun.

John Phillips

Nationwide’s Gardner added that shifting housing preferences after Covid was continuing to drive activity. Three in 10 actual and potential homemovers (28 per cent) cited a desire to access garden or outdoor space more easily, and one in five (22 per cent) to escape from a busy urban environment.

Although the country awaits the fourth and final step out of lockdown, buying agent Pryor does not think the demand for more space instigated by the lockdowns will change in the short-term.

Pryor says: “People who can move are looking for more flexible space; room to entertain, to homeschool, to work from home and if we aren’t able to go abroad, to spend the holidays in.

“This is a trend that I expect will continue for the next few years as we start to appreciate the changes brought by the pandemic.”

Kate Davies, executive director at the Intermediary Mortgage Lenders Association, says that while demand may soften following the stamp duty holiday, they do not anticipate a “cliff edge drop” in interest.

Davies says: “Many people are still keen to move irrespective of the holiday, with the Covid crisis having led people across the UK to reconsider their living arrangements.

“It does not seem logical that this trend will suddenly disappear, given the signs that there is still considerable demand in the pipeline, especially among those waiting for price growth to slow, but also from people who have chosen to wait for lockdown restrictions to ease before pressing ahead with a move.”

By Chloe Cheung

Source: FT Adviser

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