It was only possible to write this month’s Resident Expert roundup after the budget on 3 March. A great deal hinged on the measures that Rishi Sunak selected to help the economy weather the final stages of lockdown. But now, thankfully, we have a better idea of how the property market might perform in the coming months.
After the busy final quarter of 2020, the market seemed to be slowing down somewhat in January. We witnessed a 0.3% reduction in house prices during the first month of the year. Whilst that was only a slight dip there were concerns that the more negative forecasts for 2021 might prove accurate. Thankfully, however, February brought a welcome rise of 0.7%.
This rise in prices reflected a general uptick in activity. Agents became busier in late January and February, with agreed sales and new instructions also beginning to increase. It’s possible that rumours about the impending extension of the Stamp Duty Holiday (SDLT), which had definitely started to percolate by this time, managed to increase confidence.
The main problem that remains, however, is that demand is still outstripping supply. Reports that new buyer enquiries have continued to increase at a greater rate than new instructions this year – actual sales are also outweighing new properties coming to market – shows that the problem is entrenched. One hopes that a resolution can be found.
When the budget finally arrived, most property professionals were relieved. Predictions that the stamp duty holiday would be extended proved correct, and therefore a cliff edge was avoided. The extension until the end of June, with a phased transition thereafter, should allow a large number of transactions to complete without a sudden cut off point concerning buyers.
The prospect of a cliff-edge had been very real in these turbulent economic times; therefore Rishi Sunak appears to have made the correct decision. Extending the stamp duty holiday on purchases of up to £500,000 until the end of June, and then purchases of up to £250,000 until the end of September, feels about right. The usual threshold of £125,000 will be reinstated on 1st October.
The other significant news from the budget was the announcement of the Chancellor’s Mortgage Guarantee Scheme. The Treasury’s promise to cover lenders’ losses on 95% mortgages of up to £600,000 is very good news for first time buyers and those looking to upsize. The fact that most lenders have been asking for deposits of 10% (or more) in the recent times was clearly a roadblock for many would-be buyers.
Although we will have to wait and see what impact the Mortgage Guarantee Scheme has in practice, in theory it should encourage banks to offer attainable 5% deposit mortgages more often. And if this occurs then an increase in the number of potential buyers should help to underpin prices. It is also hoped that those looking to upsize will release greater housing stock lower down the property ladder.
Although some critics have expressed concern that the Mortgage Guarantee Scheme is very similar to the Help To Buy mortgage guarantee that ran from 2013-2017, Sunak’s policy is bolder and will help more people. Whereas Help To Buy was only available to first time buyers and those purchasing new builds, this new policy is open to everyone and applies to every type of property.
Switching attention to the lettings market, the average UK rent has increased by 1.3% over the last twelve months (up to January 2021). Official statistics by the Office Of National Statistics (ONS) also show that rents grew most in the South West and East Midlands, which showed a 2.2% rise, but were weakest in London where rents only increased by 0.8%.
This pattern shouldn’t be a surprise considering that London properties, particularly those close to financial centres, have become less desirable during the pandemic. Successive lockdowns have persuaded many tenants to seek larger properties with dedicated studies and more generous outside space. In fact, 15 out of the 21 London areas monitored by HomeLet actually showed a decline in rents during 2020 while others parts of the country saw large rises. Westminster witnessed a massive 16.1% fall. One wonders whether Brexit might be having an impact too.
Looking ahead to the rest of the year, it’s quite possible that rents will continue to stagnate in the capital but increase in the suburbs, smaller towns, and rural areas. Indeed, a ‘two-speed’ rental market could persist until the vaccine rollout takes full effect.
Although the market may eventually get back to something resembling normality, the rise in remote working - which many predict will become a permanent fixture of our lives - could have a lasting effect on city centre rents. After all, renters will be prepared to cast their net wider, and live further away from city offices, if they no longer need to commute every day.