The property market is usually quiet in the summer months. The spring surge is over, agents are winding down, and Balearic beaches are packed with Brits wearing bright Bermuda shorts. Who wants to view houses when there’s a lovely view of the Med to enjoy instead?
However, 2020 has been very different. The global pandemic put paid to holiday plans and prompted buyers to seek larger properties with generous gardens. Nobody wants a home with a tiny footprint when lockdowns are on the horizon.
Most significantly, however, chancellor Rishi Sunak’s stamp duty holiday encouraged buyers to come out of their shells. Agents, therefore, found themselves rushed off their feet at a time when they’re usually horizontal with sand between their toes.
The summer property boom
According to Rightmove, an enormous £37 billion worth of property sales were agreed in July. This made it the busiest month for home buying since they started collecting data over a decade ago.
Meanwhile, Hamptons revealed that the number of registered buyers was almost double what they’d normally expect during the summer. In fact, 30% of sellers received offers from three different parties.
But what, precisely, caused this unprecedented boom? Was Rishi’s stamp duty holiday driving the ‘home moving frenzy’ or was it just pent up demand after lockdown?
Let’s do the maths
Before the chancellor’s intervention, buyers paid stamp duty on homes costing more than £125,000. The stamp duty holiday raised this threshold to £500,000 until 31 March next year. This obviously gave buyers a fantastic incentive to move.
Zoopla calculated that nine out of ten buyers would pay no stamp duty at all. Meanwhile, the average bill would fall by £4,500. Those buying the most expensive homes would save even more - up to £15,000. That’s a new kitchen.
The chancellor, therefore, pulled a very timely rabbit out of his hat. Transactions across the UK could have fallen as much as 50% this year. Instead, the market has thrived in spite of the gloomy long-term economic outlook.
The stamp duty effect
The stamp duty holiday has obviously played a huge role in this turnaround. Reducing the overall cost of purchasing a home means people can stretch their budget further. What’s more, buyers can stump up a larger deposit so they’re in a better position to secure a mortgage.
Rishi’s recourse was also great news for buy-to-let landlords. Although investors still have to pay a 3 per cent surcharge, they won’t have to pay further tax on the first £500,000. This halves the amount owed on transactions of half a million.
The results are clear when one drills down into the data. Between July 8 (the date the stamp duty holiday started) and August 8, the number of registered buyers was up 38% on the same period as 2019. That’s surely no coincidence.
The Covid-19 factor
However, the chancellor didn’t create the boom by himself. Pent up demand certainly played a role too. For example, Rightmove estimated that lockdown prevented 175,000 sellers from coming to market. What’s more, half of the properties launched after lockdown found a buyer before the stamp duty holiday began.
Furthermore, the location of property hotspots suggests that the pandemic is still influencing the market. The highest number of summer sales, for example, has occurred in the countryside and the suburbs, with smaller city centre sales lagging behind.
What it all means
Sunak’s stamp duty siesta has been a sensational success. Although the housing market starting to bounce back before July 8, there was clearly a big rise in activity after the announcement. What’s more, there has been increased activity in all price brackets – especially in the south where buyers are saving the most.
Similar incentives have also worked in the past. Although the stamp duty holiday of 1991 didn’t quite have the impact expected, the figures would’ve been worse without the intervention. Meanwhile, the holiday after the 2008 financial crisis mollified the market crash even if it didn’t turn things around quickly.
The difference this time is that stamp duty incentives have come hand in hand with other factors – not least the aforementioned pent up demand plus the coronavirus induced wish to upsize to larger properties with generous outside space.
Will the good times last?
It’s tricky to say. Sales should remain buoyant this year as agents encourage buyers to complete purchases before 31st March, but what happens thereafter is anyone’s guess. Pessimists warn that the end of furlough and a possible recession could hit buyers’ ability to secure a mortgage. However, there is a more optimistic view …
An effervescent property market could fend off a broader economic downturn. Buyers might also reinvest their stamp duty savings in home improvements, new white goods, furniture and furnishings. This would undoubtedly boost the retail sector.
So perhaps the outlook isn’t so bleak? Agents certainly shouldn’t book any holidays in the near future.