Trends and predictions for the UK housing market

Against the backdrop of a global health crisis, the outlook for the housing market in spring 2020 was not a positive one to say the least. Even before the onset of the Covid-19 pandemic, Brexit fears posed questions around house price stability, with the possibility of changes to the Bank of England base rate and the chance of no-deal causing anxiety through the market.

Yet, despite warnings of the sharpest recession on record, the residential property market is booming, with house prices rising to a new record high of £323,530 in October, according to the latest figures from Rightmove. In fact, in the last four months, the UK’s housing market has experienced the most drastic shift in sentiment on record. Prices are now 5.5% or £16,818 higher than a year ago, marking the biggest rate of increase for more than four years.

If anything, the current crisis has served to prove the resilience of the UK’s housing market – but just how much uncertainty can it withstand? Below, we examine the latest trends in the property market and assess predictions for the months to come.

Stamp duty holiday sees surge in house sales

In August, HMRC reported a total of 84,910 property transactions – compared with 82,830 in February, a month before the government implemented the lockdown that saw the closure of the housing market for 8 weeks.  The real figure is likely to be higher, HMRC said, as some August data was “not processed in time for publication.”

This surge in transactions can be attributed to several factors – notably, the arrival of the stamp duty holiday incentive for residential properties worth up to £500,000, effective from 8th July 2020 until 31st March 2021. According to the Chancellor Rishi Sunak, the stamp duty holiday would allow nine out of ten people to get on or move up the property ladder and pay no SDLT at all, delivering an average saving of £4,500.

With the release of pent-up demand and supply and confidence running high, buyers flocked to the market as the summer came to a close. Of course, it’s not only first-time-buyers taking advantage of this incentive. Those eager to seize the opportunity to grab the first rung of the property ladder faced competition from investors looking to pick up a bargain as the stamp duty holiday came into force.

The effects of lockdown influence consumer demand

With strict restrictions coming back into force across the country as part of the government’s “postcode lockdown” approach, working remotely is once again the standard for the nation’s office workers. What many call “the new normal” has already begun to see a shift in consumer preferences when it comes to property hunting.

Rather than searching for somewhere that is on the doorstep of their workplace, many are taking the opportunity to purchase larger property in rural areas where prices are lower and they can get more for their money.

Already, the number of jobseekers eager to leave the capital in August 2020 has more than doubled when compared with the same period in 2019, according to a survey conducted by Escape the City, while results from a recent YouGov poll found that many people ranging in age and career were considering moving further afield because of remote working. But what about in a post-Covid world? On July 9th, Matt Hancock said he would consider making it mandatory to give the option of remote working to employees where possible.

Even if this doesn’t come into force, have the ripple effects of the pandemic served to shine a light on the high cost of living and lack of affordable accommodation in big cities?

Mortgage availability for lower deposits falls sharply

In an economy rocked by fast-shifting restrictions from the global pandemic, mortgage lenders have been anxious to offer products aimed at first time buyers, leaving a limited choice of deals available for borrowers without access to a large deposit. According to data from Moneyfacts, the total number of residential mortgages has more than halved since March, plummeting from 5,222 to 2,338.

From a lender’s perspective, it’s understandable – such mortgage deals are considered a greater risk as there is more chance of the borrower ending up in negative equity should house prices fall.

As such, there are now no mainstream mortgages available for those with only 5% to put down, with only a limited selection of specialist products remaining which require either a guarantor or for borrowers to be located in a particular area or working in a specific profession. For those able to afford a 10% deposit, there are now only 45 products available to choose from, down from 779 in March. Buyers are urged to tread with caution and to use this period of uncertainty to try to save more towards their deposit, allowing them to increase the number of mortgage deals available to them.

The outlook for the housing market moving forward

With the recent resurgence in Covid-19 cases and a fresh wave of restrictions, the question is whether we will start to see buyers retreating – particularly as the end of the Brexit transition period approaches. In a recent comment, The Centre for Economic and Business Research (CEBR) called Britain’s property boom a “paradox” last week, coming in spite of an ailing economy only beginning to recover from a steep recession.

Looking ahead to 2021, the CEBR further predicted a slump in property prices by 13.8%. A study conducted by the economic consultancy stated that many of the drivers in the recent rebound were “transitory in nature” – meaning the outlook for 2021 will be much tougher. As incentives such as the SDLT holiday come to an end and pent-up demand wains, we can expect prices to start falling. Further, with unemployment likely to rise sharply in the final months of the year, it’s hard to imagine a sustained appetite amongst buyers in the fallout from the pandemic. The current momentum driven by stamp duty holiday sales has helped to keep the housing market healthy, and activity remains high despite local lockdowns. Whether this continues into the coming year remains to be seen.

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