At the start of March, as was widely predicted, Rishi Sunak extended the Stamp Duty holiday. The holiday period for the £500,000 nil-rate band will now come to an end on 30th June but will continue for the first £250,000 of any purchase until the end of September. This has come as a relief to the 100,000 or so buyers that were stuck in the sales pipeline and were expecting to miss out on the original cut-off date. It’s estimated that 300,000 buyers will benefit from the changes, saving a combined total of £1.75bn. At the same time, the Chancellor announced a government-backed Mortgage Guarantee Scheme for 95% LTV mortgages for purchases of up to £600,000. The initiative will provide a much-needed boost to first-time buyers, many of whom had been struggling to find mortgage deals at those levels.
Before the changes were announced, to many commentators’ surprise, prices rose in February. Rightmove reported, after three months of falls, asking prices were up 0.5%. In the first week of February, visits to their site rose by 45% compared to this time last year, with 18% more enquiries and 7% more purchases agreed. That’s despite the fact that those buyers were very unlikely to meet the original stamp duty deadline. Rightmove put this down to tightening supply levels, which had fallen by 21%, with many homeowners reluctant to sell during lockdown #3.
To add to demand, on the back of improving access to high LTV mortgages of between 90% to 95%, first-time buyers (FTBs) have been returning to the market in significant numbers. Hometrack reported FTB purchases had risen by 5% in the first six weeks of 2021, with sales of properties in their typical price range (£100,000 to £250,000) increasing by 18%. The new Mortgage Guarantee Scheme, will, no doubt, accelerate this process.
But what does the holiday extension mean for the housing market as a whole? As it already has done, it will almost certainly provide a major boost to both prices and transaction volumes. If you then add the success of the UK’s vaccine programme into the mix and our imminent emergence from lockdown, the outlook, at least in the short-term, is very bright.
Furthermore, the tapering of the holiday period, with the second stage coming to an end in October, should reduce the risk of a cliff-edge end to the tax break. In the medium-term, however, much will depend on how well the economy rebounds, with demand expected to be dampened by rising unemployment. On the back of the Chancellor’s announcement, Hometrack/Zoopla is now expecting prices to end the year up 1% and the Office for Budget Responsibility has raised their long-term estimate for price rises for 2025 from 11.4% to 13.5%.
Most indices, bar Halifax's, show signs of a small rise in prices in February. March’s figures, though, will give the first indication of the market’s reaction to the stamp duty holiday extension.
Nationwide: Feb: Avge. price £231,068. Monthly change +0.7%. Annual change +6.9%
Halifax: Feb. Avge. price £251,697. Monthly change -0.1%. Annual change +5.2%
Land Registry (stats run 3 months in arrears): Dec 20: Avge. price £251,500. Monthly change +1.2%. Annual change +8.5%. In West Berkshire, where we operate: Avge. price £370,628. Monthly change +0.6%. Annual change +6.2%.
Hometrack UK 20 City Index: Jan: Avge. price £263,700. Monthly change +1.2%. Annual change +4.3%
Rightmove: Feb: Avge. price £318,850. Monthly change +0.5%. Annual change +3.0% (asking prices). West Berkshire, where we operate:Avge. price £427,316. Annual change +5.0% (asking prices on Rightmove)
The chancellor’s budget is also likely to have an effect on the rental market. Supplies of rental property were already being affected by the Stamp Duty Holiday, as many landlords took advantage of the buoyant sales conditions to offload some of their properties. This process may now continue until autumn when the tax break finally comes to an end. In London, it’s especially pronounced - 13% of stock currently listed for sale is ex-rental (source Zoopla). So, as we slowly return to our city centres, there may be supply shortfalls and rents could start rising rather than falling in more central areas. Rightmove has already seen a surge in searches for rental properties in London's zones 1 and 2, with traffic up by as much as 126% in some areas. However, with the threat of an increase in capital gains tax receding, at least for the time being, the motivation for landlords to sell has been reduced.