In 2020 the housing market defied all the odds and steamed ahead during a global pandemic. Pent up demand and the current (at time of writing) Stamp Duty Land Tax (SDLT) holiday saw buyers flock to the market. Yet, while the year ended on a high, many industry critics believed that the housing bubble would burst, and transactions would fall off a cliff edge, when the SDLT holiday was due to end March 31st, 2021.
Take a look at our analysis of the UK’s housing marketing for Q1 and what could happen as we look further ahead.
• January 2021
Entering the New Year, buyer demand remained strong, despite some uncertainty about whether those who didn’t enter the transaction stream until January 2021 would see the benefit of the stamp duty holiday.
The ONS reported that in the UK average house price increased by 7.5% over the year to January 2021. This was slightly down from 8.0% in the year to December 2020.
• February 2021
As the countdown for buyers to benefit from the stamp duty holiday came into full swing, the ONS reported that the UK’s average house prices increased by 8.6% over the year to February 2021. This was up from 7.5% in the year to January 2021.
• March 2021
As part of the Chancellors Spring Statement, the government extended the current stamp duty holiday for a further six months, with a slight tapering until the 30th of September 2021.
At the time of writing this, the official UK HPI figures are yet to be published. However, Nationwide reported as part of its monthly house price index, that annual house price growth slowed to 5.7% in March, a reduction from 6.9% in February.
Prices fell by 0.2% month-on-month, after taking account of seasonal effects, following a 0.7% rise in February. Therefore, we would expect that the official government statistics will show a similar trend.
What challenges lay ahead:
While the market continues to remain strong and despite the stamp duty holiday extension being in place until June 2021, there are still challenges for those looking to get onto the property ladder.
Currently, there simply isn’t enough housing stock to meet buyer demand. Rightmove reported, in its April house price index, that almost one in four (23%) properties that had a sale agreed in March had been on the market for less than a week, which is the highest rate that they’ve ever recorded.
In these exceptional circumstances, buyers have to position themselves to be able to act quickly. This means having a mortgage in principle secured and if they’re also selling their property, ensuring it’s sold subject to contract in order that an offer is taken seriously on any purchase.
A Spring surge into a Summer bubble?
In its recent report, the ONS revealed that the average UK house price was £250,000 in February 2021; £20,000 higher than in February 2020. This property price increase would certainly wipe out any saving buyers could make from the stamp duty holiday, yet it remains a strong motive for buyers to seize the opportunity to move.
At Enact, before the stamp duty holiday was extended, our total instructions in February was almost 60% higher YoY. These buyers were fully aware that it would be unlikely that they would be making any saving from the SDLT holiday. On this basis we believe that, as lockdown restrictions ease, and more of the population become immunised, potential sellers will be more compelled to put their properties on the market, further stimulating activity amongst buyers who may have so far struggled to snap up properties quickly enough in the first quarter of the year.
The government’s 95% mortgage guarantee scheme also looks likely to re-kindle interest from first-time buyers. This should prove to be a welcome benefit, as first-time buyers have been without a 5% deposit mortgage product for over 12 months. Furthermore, the rising house prices have limited their ability to afford the mortgages that have been available. Therefore, this new government scheme will almost certainly see a surge of interest from the first-time buyer at the bottom of the chain with the expected support this brings further up to the rest of the market.
Autumn & Winter
The forecast for the housing market as the year concludes looks less optimistic, however. With the winding down of the government’s furlough scheme, it remains to be seen how the UK’s economy performs as it learns to live with the COVID-19 virus. Any assumptions at this stage would be entirely speculative, though with the support of the resources mentioned above, there is no doubting the buoyancy of the market will help delay any future downturn we may see in Q3 and Q4.