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How long will the property boom last?

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Sat 24 Oct 2020

How long will the property boom last?

Buyers hoping for a repeat of the 2008/09 slump in residential property prices, amid economic uncertainty caused by the Covid-19 crisis and Brexit, have so far been left disappointed.

The latest Land Registry House Price Data shows that home prices increased again in August to reach an average of £251,439, which is an increase of more than £8,900 since the start of Lockdown.

“If one was not aware of the pandemic one might ask what has been stimulating the UK housing market,” said Anthony Codling, CEO, Twindig. “House prices were up more than £5,000 before the announcement of the stamp duty holiday, which begs the question – was it needed?”

While there are several elements fuelling growth in demand for property, there can be no doubting the fact that the existing stamp duty holiday has been a primary driver, along with a general desire for more space.

Craig McKinlay, new business director at Kensington Mortgages, commented: “Compared to house prices crashing by over 15% in early 2009, it is still pretty remarkable how well the market is faring thanks to pent up demand and a stamp duty break.

“The market is more robust now than what can be said for the wider economy, and this is only likely to continue for the rest of the year for those who can make their next move on the property ladder.”

Iain McKenzie, CEO of The Guild of Property Professionals, concurred: “There are a few elements that are fuelling buyer demand at the moment, one being the stamp duty holiday, with many moving up their decision to purchase a property to make the deadline at the end of March next year.

“A change in a lot of people’s lifestyle and work situation is also impacting demand with people wanting larger homes with more space, be it an extra room they can use as an office or a garden.”

But while buyers look to property as a relatively safe investment for their money, there are also growing concerns about the state of the economy with the UK experiencing its first recession in 11 years, and so is the housing market’s post-lockdown bounce about to run out of steam?

McKenzie added: “Properties are selling faster than they did a year ago, however, the latest mortgage approvals suggest the market is returning to more ‘normal’ levels and the forced pause in the housing market means 2020 sales levels will no doubt end below those of 2019.”

But he points out that UK house price growth is still at its highest level in over two years and revised forecasts anticipate property prices will end the year 2% higher, which is “a significant reversal to the negative expectations anticipated as the market reopened”.

Nicky Stevenson, Fine & Country, also believes that the housing market is looking at a “strong autumn”, but beyond that?

Stevenson commented: “The question is how long this surge can last, with speculation already swirling that the market is set for a fall. Such predictions are probably premature.

“Though strong growth like this will be temporary and we will soon be entering the traditionally quieter winter period, there are reasons to suspect that this is no ordinary autumn.

“Consumer confidence among large swathes of the population is still very high. We already know that during lockdown a record 29% of disposable income was tucked away and saved as people were unable to get out and enjoy themselves. Rightmove also reported a 70% annual jump in the number of sales agreed during September and it says that, for the first time on record, agents have more properties marked as sold than available for sale.

“This is incredible. These aren’t metrics usually associated with a stalling market, though the rate of growth will inevitably slow before picking up again in the New Year.”

While most home movers are doing well, the same cannot necessarily be said for first-time buyers, owed largely to the sharp decline in the availability of high loan-to-value mortgage products.

“There’s been some talk lately of what effect the removal of many high LTV mortgages is having on the first-time buyer market which is as much a leading indicator as the all-important London market,” said independent estate agents James Pendleton.

But the London-based agent reports that the drop in high LTV mortgage product is “having very little effect” on the housing market locally.

He commented: “Demand for cheaper properties hasn’t weakened and that’s because the bank of mum and dad is still widely open for business, interest rates remain low and high rents mean it’s still well worth getting on the property ladder.

“As long as mortgage repayments remain cheaper than the cost of rent, demand to buy a first home will continue to show strength, and first-time buyers everywhere are still able to turn to the Help to Buy scheme if they need to.

“We are about to hit a period when the market traditionally slows down. When the clocks change, people switch into hibernation mode and new enquiries begin to soften until the New Year. How much the stamp duty holiday will affect that this year remains to be seen, but this incentive plays a relatively muted role in the capital where prices are highest.”

According to the OECD, the UK risks lasting economic damage from Covid and Brexit, with spending cuts and productivity boosts required to help the economy recover from the pandemic and Britain’s decision to leave the EU, but that does not necessary mean property prices will plummet.

Much will depend on the chancellor and what fresh initiatives, if any, he comes up with to prop up the property market, and help prevent a collapse in prices – not just to protect homeowners, but the banks too.