Has the Property Market Hit Its Ceiling? - Forbes

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The latest UK House Price Index published in January this year states that house prices had increased by 7.6% in the year to November 2020, up from 5.9% in October. On a non-seasonally adjusted basis, average house prices in the UK increased by 1.2% between October and November, which is significant considering house prices fell by 0.4% during the same period a year earlier.

Based on this, it seems that the mini-boom experienced in the property market, due to the pandemic and subsequent lockdowns, was still alive and well as we neared the end of 2020. While many were predicting house prices to fall last year it never materialised, instead surges in demand from people reassessing the way they want to live, only pushed them skyward. The record high property prices experienced throughout last year was a reflection on how robust the property market is, as well as peoples fortitude to move despite challenging circumstances.

Another indication that the boom might not yet be over is the reintroduction of low-deposit mortgages. In early September 2020, low-deposit mortgages were scarce with only 44 available products, this has increased to nearly 200 products according to data from Moneyfacts. This is a significant adjustment and likely to stimulate the first-time-buyer market, once again allowing first-time buyers to realise their homeownership dreams.

The announcement of the Stamp Duty Land Tax (SDLT) holiday was another catalyst that added fuel to a market that was already bucking seasonal trends. Many people escalated their plans to move in order to make the deadline and benefit from the tax relief. According to Zoopla, in the last quarter of 2020 there were over 140,000 more people in the process of purchasing a property than there was in the previous year, with an estimated 418,000 home sales progressing to completion.

While excited buyers are crossing their fingers and hoping that their property sale will get over the line before the gate closes, the exceptionally high volumes of transactions have caused delays. The existing supply chain processes are under significant strain with property sales reported to have increased from an average of 12 to 20 weeks to complete. Experts fear that with the property industry unable to process the transactions fast enough, the likelihood is that those still in the pipeline at the end of January will not make the cut off at the end of March. In fact, if the deadline is not extended, only a quarter of sales agreed during January will benefit from the incentive. Given the vast volumes of transactions currently moving through the process, there will be tens of thousands of people who will miss the deadline and will have to find additional money to pay the tax owed. The looming deadline being too close for comfort has already impacted confidence with the market taking a few blows recently.

According to a recent survey conducted by The Guild of Property Professionals, around a third (31%) of people currently in the process of purchasing a property said that they would cancel their planned move if they had to pay stamp duty, with a further 43% admitting that they would most likely do the same. If buyers do as they say and pull out of their property purchases, we would see a large number of property transactions falling through at the beginning of April, if not before. However, that said, it remains to be seen whether buyers will actually turn their back on their purchases if they can’t claim the relief. It seems that the more realistic outcome would be widespread renegotiations up and down chains, given the fact that once you have found the ideal home, it is far easier to say you will walk away from it, than to actually do it. With the end of January just around the corner, we don’t have wait long until we find out whether buyers will stick to their word.

For now, the property market remains strong, bolstered by the stamp duty holiday and post-Brexit investor confidence, however, challenges lie ahead. The true test of the property market’s resilience will be at the end of the stamp duty holiday and, of course, the furlough scheme, which will likely lead to a rapid increase in the unemployment rate if businesses are unable to recover from the financial damage caused by the pandemic. If this happens, the property market will no doubt slow and the rapid growth in housing prices will grind to a halt.

The health of the property market and house prices in 2021 will largely be determined by the recovery from the pandemic, which will be influenced by the success of the vaccine programme or the government extending their support to the economy through fiscal and monetary stimulus. According to reports, Chancellor of the Exchequer, Rishi Sunak is currently drawing up plans to extend support for UK jobs in the months ahead. The details and what form the measures will take will be laid out in the March 3 budget and will be dependent on how the pandemic unfolds up until then. Until then, we wait expectantly.

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Has the Property Market Hit Its Ceiling? - Forbes
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