- The nationwide house price index rose by 1.7 per cent in July, which is the highest monthly leap in prices since August of 2009 when the market was recovering from the financial crisis
- Bank of England had also reported that the mortgage approval jumped four times in June compared to May
- The stamp duty holiday announced by the government till March of next year is expected to be a major driver for house prices for the next eight months
The upswing in the housing industry in the United Kingdom post the opening of the pandemic has been more than eventful. While other industries witnessed a slow uptake in business activity due to the continuing social distancing measures in place, this industry started showing some expansionary trends in the month of June itself. This euphoria in the industry it seems has only become stronger in the month of July despite the prevailing fear of a second wave. The Nationwide house price index for the month of July has stated that the annual house price growth has improved by 1.5 per cent, while on a month- on- month basis prices have risen by 1.7 per cent, reversing for last months fall while adjusting for a seasonal factor. This is the single largest surge in house prices in the country that has been witnessed since August of 2009 when the British economy had just started to recover from the financial crisis. However, there is still some risk, that this bounce back may again take a plunge in the coming months if the unemployment numbers in the country continue to surge.
The housing market since the imposition of the lockdown
The demand for houses in the United Kingdom was hovering around 98,000 (five-year average) just before the pandemic had hit the nation. In weeks since the pandemic hit, the demand dropped to nearly 40,000, before making a sharp recovery during the past couple of weeks. The average house prices in the country which was recorded at £222,915 in the month of April, fell to £218,902 in the month of May with a further fall witnessed in the month of June to £216,403, before making a recovery to £220,936 in June. However, it is worth noting here, that though the seasonally adjusted month-on-month prices have risen by 1.7 per cent, but the three month on three-month house prices are still down by 1.3 per cent.
Recently, Bank of England (BoE) had also reported that the mortgage approval jumped four times in June compared to May, though still remaining 40 per cent below pandemic levels. Most of the prospective new house buyers could not go out of their houses during the lockdown and remained confined to their houses, immediately showing their eagerness after the first phase of the unlocking. Their online activity during and immediately after the lockdown gave many indications of how the attitudes of people have evolved through the pandemic. Property market information provider and real estate agency service aggregator in the UK; Zoopla.com had in May reported that they had witnessed a surge in the number of hits on their website of people looking for properties outside of London and other metropolitan areas in the suburbs. Coming immediately after the lockdown was eased, giving an early indication of what shape the market would take in months to come.
Stamp duty holiday and its likely impact on demand
The stamp duty holiday measure announced by chancellor Sunak last month till March of 2021 could be one of the major drivers of demand rise and price rise in the property market in the coming months. In the past fourteen years, it has been witnessed several times, that the volume of transactions in the property markets shows a sharp increase whenever a change in stamp duty regimen is initiated. In 2016 when higher stamp duty rates were announced for second-hand properties, the transaction volumes in the industry suddenly increased from 110,000 levels to 175,000 levels. Similarly, minor surges in transaction levels were also witnessed in 2012 and 2010 when stamp duties in the country were tinkered. In fact, in the past three years, the average transaction volume levels in the country have remained at nearly 100,000, and during this time, no major changes were made to the stamp duty levels in the country. Thus, the government’s move to spur demand in the market is backed by strong empirical evidence.
Other factors that could impact demand for the forthcoming months
There are also a number of other factors, other than the stamp duty holiday that would help in the strengthening of property prices in the next year to come. The first and the foremost is the massive increase in the instances of Work from Home (WFH) that has happened because of the pandemic and the ensuing lockdown. More and more people now realising that they can work remotely at the same level of productivity and salary; hence they need not live in a congested metropolis and enjoy a better quality of life in a suburban setting. Second, the pandemic has also brought about a change in people’s mindsets regarding the risks of living in a metropolis. Cities like London which attract millions of foreign visitors on a daily basis is always in danger of being infected by pathogens from far off places, whereas in a suburban environment there is greater distancing among people and less risk of infection.
The stamp duty holiday could provide a strong push to both demand and prices of properties in the UK in the next few months. While the pent-up demand over the lockdown period provided the initial boost to property prices, there are several factors that will provide the sustaining support for the rest of the year. The most important factor that would improve the sentiments of the general public will be the early availability of the coronavirus vaccine. If the current development timeline stays on schedule, then are chances that we may get a vaccine by September this year, and most of the people in the country could get inoculated by the end of the year, as among all the reasons that would aid in the recovery of the economy, this one is the most crucial.