01 Jun How has Covid-19 affected the price of your house?
In spite of a shaky beginning to 2020 for the UK property market in the wake of the Covid-19 pandemic, there has been a promising overall rise in both sales and house prices over the past 12 months.
The initial Covid-19 lockdown period in the UK from March-May 2020 saw a build-up of both existing and potential buyers who were unable to progress with property sales. This was followed by a boom in sales and the steepest rise in house prices in quarter 2 of 2020 since 2016.
When Rishi Sunak, the UK Chancellor, introduced a reduction to stamp duty land tax rates from 8 July 2020– 31 March 2021 to revive the housing market, there continued to be a dramatic increase in property purchases and, as a result, in house prices during the remainder of 2020. Indeed, the Nationwide House Price Index has shown that annual house price growth in the UK reached its highest rate since January 2015 (7.3%)in December 2020.
Such has been the uptake following the stamp duty cut,with many buyers still mid-purchase as 31 March 2021 approached, that the deadline was extended in England, Wales and Northern Ireland* by a further 3 months to 30 June 2021.
This means that the nil rate threshold for stamp duty will remain at £500,000 for main residence properties, offering savings of up to £15,000 and with many homes being exempt from the stamp duty tax altogether. From 1 July – 30 September 2021, the threshold will be set at a generous £250,000 for main residence properties, returning to the pre-pandemic threshold of £125,000 for property purchases made from 1 October 2021 onwards. Popular news, although many in the property sector are still seeking much lower rates and even the abolition of stamp duty altogether.
The Chancellor also announced an extension of the furlough scheme and the self-employment income support scheme (plus greater access for the newly self-employed) until 30 September 2021 as part of the 2021 Budget, plus significant assistance for businesses in the form of grants, loans and reduced VAT. This means employees will continue to receive 80% of their salaryand as the economy reopens, employers will be expected to contribute 10% in July 2021 and 20% in August and September 2021. The Chancellor also introduced a mortgage guarantee system, allowing homeowners who can provide a 5% deposit to access a 95% mortgage as opposed to finding the usual 20%+ deposit which is generally required by mortgage lenders.
As such, industry insiders have suggested that we will continue to see property prices increase in the coming months. But what will happen to property prices once both the stamp duty reduction and financial incentivesend and what will be the longer lasting impact of the on-going Covid-19 pandemic on your house price?
In the short term, despite a slight dip of around 0.9% in annual house price growth in January 2021, since the Chancellor’s announcement of the extension to the stamp duty cut and other financial incentives, we have seen prices continue to rise in 2021. The Nationwide House Price Index – which is based on mortgage lending and the agreed sale price rather than asking price – showed an encouraging annual rise of 7.1% in UK property prices and a 2.1% month on month rise in April 2021, the largest monthly rise since February 2004, before the global credit crunch.
The actual number of houses which have been sold has also increased substantially since the announcement of the stamp duty cut in July 2020. Over 190,000 property transactions were completed in March 2021, nearly twice that of March 2020. Whilst this rise could be partially accounted for by those buyers trying to meet the original stamp duty reduction deadline of 31 March 2021, the figures are certainly encouraging.
The number of favourable mortgage rates have also increased since the start of the pandemic, particularly for those who can pay a higher deposit. And whilst demand also continues to outstrip supply, with a continually high numbers of buyers not being matched by the number of properties coming onto the market, we are likely to see house prices remain high.
However, the continued uncertainty around Covid-19means we are likely to see some variability in the housing market, as the UK economy – which is also feeling the impact of Brexit – continues to recover and there is a worry that temporary incentives may artificially inflate house prices when the focus should be on housing supply and planning reform to help as many people as possible access the property ladder. Although many industry insiders still anticipate that the economy will have recovered sufficiently by the time theGovernment’s financial incentives and stamp duty cut end to see house prices continue to rise at the end of 2021, with property group Savills suggesting an average rise of 4% overall across 2021.
When it comes to the longer-term economic recovery of the UK and the impact on the property sector, plans to reform the stamp duty tax, property taxes and arrangements for the self-employed, not to mention future tax rises across the board and corporation tax in particular from 2023, means that the wider impact of Covid-19 on property prices is likely to be very changeable in the years to come.
*Unfortunately for existing and potential buyers in Scotland, the cut to the Scottish version of Stamp Duty, the Land and Buildings Transaction Tax (LBTT), which was also introduced in the wake of the Covid-19 pandemic ended on 31 March 2021 as originally planned.