The Daily Telegraph - Saturday - Money
Is a reckoning coming for the property market?
Stamp duty savings will disappear, demand is dwindling fast and landlords may soon rush to sell. How long can the property market boom go on? Melissa Lawford reports
Rocketing prices and an extreme supply crunch mean that, for most buyers, the property market is an unpleasant place to be. For Jennifer Brown*, a 79-year- old pensioner, the situation is stark. Mrs Brown wanted to downsize from the four- bedroom house she has lived in for 22 years in a village in Suffolk. When the stamp duty holiday was extended in March, she decided to make the jump.
She benefited from the buying frenzy: after previously failing to sell the property for £350,000 a few years ago, she got an offer four days after listing it in March for £390,000. She sold up and moved out.
But now she has been caught out by the supply shortage and soaring prices, which are particularly hitting the type of property she wants. “I sold a four-bedroom house and it isn’t even going to meet the cost of an ordinary bungalow,” said Mrs Brown. In April she had a £435,000 offer accepted on a home, but the owners are also downsizers and will not sell until they have somewhere to move to. Five months on, Mrs Brown is still in limbo. “I am beginning to panic,” she said.
But there are signs the market could turn. The stamp duty savings will disappear at the end of this month, and so will the furlough scheme. Buyer demand is high, but has declined rapidly since its peak. Will there be an autumn property market reckoning?
DEMAND IS COOLING Lucian Cook of Savills estate agents said: “I think the next 18 months will be a period of normalisation; some of the urgency has come out of the market.”
Since the spring, when the possibility of getting the maximum stamp duty savings had gone, demand has cooled fast. Savills’ analysis of data from analytics firm TwentyCi showed that agreed sales in August were 9pc above the 2017 to 2019 average. This was a drop of 44 percentage points since April, and the lowest level since June 2020.
DISAPPEARING SAVINGS Transaction levels in September could be 10pc to 20pc above normal levels, said analyst Neal Hudson of BuiltPlace. Buyers are rushing to take advantage of the last of the stamp duty holiday savings before September 30; from October 1, the incentive will end altogether.
After the stamp duty nil- rate band was tapered from £500,000 to £250,000 at the start of July, the benefits shifted from the south of England to the North and Midlands, where lower home values meant buyers benefited from a higher saving in proportion to house price.
Analysis by Hamptons estate agents showed that in areas such as Worcester, Rugby and York, savings on stamp duty were equivalent to 0.7pc of local house prices. It is these places that could encounter the biggest change when the tax break ends, but agents are bullish.
Martin Robinson of Hunters estate agents in York said: “In June everyone was calling me about the deadline and I was terrified that everyone would pull out of their sales if they missed it. This time I’ve not had anyone panicking about stamp duty. They’re so pleased to get a property, they won’t let it go.”
THE SUPPLY CRUNCH COULD EASE The stamp duty holiday contributed to the acute lack of supply, because it incentivised investors and second homeowners. “They are net ‘ takersaway’, as they do not sell anything when they buy, and that has contributed to the supply crunch,” said Mr Hudson.
New instructions in August were 17pc lower than normal levels, according to TwentyCi. “That general lack of stock is likely to underpin pricing to the end of the year, irrespective of stamp duty,” added Mr Cook.
Supply could be boosted in a chain reaction from economic circumstances. The closing of the furlough scheme poses a risk, but any spike in unemployment is more likely to hit the rental market than the sale market, said Mr Hudson. “Unless there is a large number of repossessions off the back of it, the direct impact on transactions will be fairly limited.”
Mortgage repossessions could spike as the backlog of claims that were not processed during the moratorium, which ended in April, hits the market. But rates were already at record lows before the pandemic, said Mr Hudson. Any rise would therefore be small on a historical scale.
Andrew Wishart of consultancy Capital Economics added that a temporary rise in unemployment after the end of the furlough scheme would be mitigated by the fact that job vacancies are at a record high.
A rise in homes for sale could come from investors selling up. “We could start to see a lot more activity from landlords getting tenants out,” said Mr Hudson. “There would then be a flurry of activity from buy-to-let landlords selling off, after the frustration of 18 months of not being able to access their properties.”
High prices would be a further temptation to sell up. “That could lead to high levels of supply [in particular areas and types of property], and that is a potential risk to prices.”
COULD DEMAND FALL OFF A CLIFF? Wealthy upsizers are still the driving force of the market. While agreed sales of homes priced at £ 1m and above in August were still 52pc above the 2017-19 average, sales of homes worth less than £ 200,000 were down by 11pc.
Moves at the higher end of the market are closely tied to the race for space after lockdown. “Whether the change will be structural or if it was a one- off shift, that is where the great uncertainty lies,” said Mr Hudson.
Wales recorded the fastest house price rises of any country in the UK. Data from the Office for National Statistics found values in June were up by 16.7pc, against national growth of 13.2pc. Carol Peett of West Wales Property Finders, a buying agency, said the primary driver of the market had been people returning to Wales now that they can work remotely.
Agents have reported that many buyers brought forward moves because of lockdown. “If all we have done is brought forward moves from the next five years, there will be fewer moves in the next five years,” said Mr Hudson. Mr Cook argued, however, that many people had also put moves on hold after the Brexit referendum, when the market was sluggish thanks to the uncertainty. “Demand is also coming from four or five years of delayed transactions,”
he added.
LOOMING INTEREST RATE RISES The market’s continued momentum and house price growth depend on low interest rates. Capital Economics found the ratio of house price to earnings was at its highest level since 2007, but this does not matter as much as in previous years, because the record low Bank Rate means borrowing is cheap. A person buying an average-priced home needs only 36.3pc of an average income to service an 80pc mortgage. In 2007 the share was 61.4pc. But this will change. Because of rising house prices, Capital Economics has forecast that the share will rise to 37.9pc by the end of 2021. This would be the highest level since 2016.
If Bank Rate rose, there could be an affordability crunch. If it hit 1pc, by the end of 2022 a homeowner would need 40.7pc of their income to service an 80pc mortgage. And if it rose to 2pc, by the end of 2023 they would need 47.7pc of their income, the highest share since 2008.
‘Some of the urgency has now come out of the market’