We caught up with Richard Donnell, our director of research and insight, to find out what's driving house price growth.
Q. Richard, record-high sales were agreed after the first national lockdown, house price growth has hit 3% and the sales pipeline is 50% bigger than this time last year. Is this sustainable?
A. The post-lockdown surge in demand is almost unprecedented. And that’s because there are three cohorts of buyers in the housing market that you wouldn’t normally have.
The first is buyers who were forced to put their moving plans on hold when the housing market was shut down as a result of the pandemic. The second is buyers who have been spurred on by a once-in-a-lifetime re-evaluation of their homes. And the third is buyers who want to take advantage of the stamp duty holiday.
This sheer volume of buyers can’t be sustained for a prolonged period of time. So it’s unsurprising that demand has slowed since the summer and has now returned to pre-Covid-19 levels. However, it’s important to put this into content – appetite is still more than 40% higher than a year ago.
Q. The stamp duty holiday deadline is focusing many buyers’ minds. What advice do you have for first-time buyers and existing homeowners hoping to take advantage of the saving?
A. On average, it takes 100 days between a sale being agreed and completion. With the stamp duty holiday ending on 31 March, it’s all about getting prepared now to reduce potential delays.
If you’re selling your home before buying another, you might not consider lining up a lawyer until you’ve agreed a sale. But you could shave weeks off the transacting timeline by instructing a conveyancer and estate agent at the same time. It will enable your conveyancer to prepare and get your home ‘contract-ready’ while it’s being marketed.
If you’re a first-time buyer, there’s still plenty you can do to pave the way for a smooth and prompt purchase. This includes getting your paperwork in order, such as securing a mortgage in principle.
Q. To what extent is the stamp duty holiday driving sales volumes? Will there be a significant drop-off in activity when the tax break ends?
A. Stamp duty holidays have always distorted housing market activity and this one is no different. The stamp duty holiday announced by the Chancellor in July means that nearly nine out of 10 property transactions are no longer subject to stamp duty, with the average stamp duty bill falling by £4,500. So yes, it’s important and it’s added impetus. But it’s not the only factor driving housing market activity.
There are more deep-seated reasons why people are moving now. As I mentioned earlier, the pandemic has caused many people to carry out a once-in-a-lifetime re-evaluation of their home and this has been a greater underlying driver of activity.
The latent demand that’s been unlocked by the pandemic, particularly among older homeowners, has the potential to run beyond the end of the stamp duty holiday.
Q. The House Price Index refers to increasing polarisation in the housing market. What does this actually mean and how will this show through in 2021?
A. National measures of housing market activity, such as house prices and sales volumes, are strong. But this picture is not uniform across the UK.
There is uncertainty in some parts of the housing market, with rising unemployment and stricter lending among the economic pressures taking their toll. You can see fewer sales in less wealthy markets, where people are more sensitive to economic headwinds.
At the other end of the spectrum, there’s more activity in wealthier markets where homeowners feel the recession less acutely. This is also tied to the fact that the housing market in London and the south of England has been quite weak in recent years so it’s bouncing back more than other markets.
Q. Since the latest House Price Index was released, a second lockdown has come into force in England. What will the short and long-term effects of this be?
A. The housing market is one of the bright parts of the economy, and the government has made sure that it remains open throughout the second lockdown.
With people unable to get out and about as they normally would, the second lockdown will emphasise once again the importance of the home. People will keep re-evaluating their home and lifestyle.
But despite the furlough and the mortgage payment holiday schemes both being extended, the economic pressures remain.
Q. And how will the second lockdown impact house prices?
A. It won’t have a significant impact on house prices because the housing market is still open for business. Headline house price growth will continue to rise towards 4% by the end of the year.
However, it’s important to remember that there is significant regional variation. Everyone’s homes sit in different housing markets, and what happens to values reflects local supply and demand, as our House Price Index shows.
Thank you Richard.
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