- The average housing price set by home sellers in England was down by 0.5 per cent in October
- The fall in housing prices seems to have been triggered due to increased supply of housing projects
- As the pent-up demand and a broad desire to secure more space to make lifestyle adjustments soars, Rightmove predicts a potential upside of 7 per cent in UK property prices for 2020
The recent housing prices boom in the UK’s real estate market seems to be short lived. UK-based online property portal Rightmove Plc (LON: RMV) reported a decline in property prices in October. The housing prices were primarily driven upwards on the backdrop of stamp duty land tax holiday which will end in March 2021.
Notably, Chancellor of the Exchequer Rishi Sunak offered relief to buyers in England and Northern Ireland for buying homes valued at up to half a million pounds. Sunak extended the zero-rate stamp duty band in England and Northern Ireland from £125,000 to £500,000 in July to boost the investor sentiment in the real estate sector that allowed the buyers to save up to £15,000.
Another reason for the surge in prices was the rise in demand for new homes. The coronavirus pandemic has led to lifestyle changes with homes doubling up into office spaces or virtual classrooms. Remote working has encouraged people to relocate to countryside locations. With another lockdown in place, the sector is expected to witness sustained demand for housing.
However, there is a twist, the fall in housing prices is understood to have triggered due to increased supply of housing projects. Property sellers seem to be in a rush to find buyers as the March stamp duty deadline nears. According to Rightmove, the average housing price set by home sellers in England was down by 0.5 per cent to £322,025 and was £1,505 less than in September on an average.
In a bid to avoid delays in the buying process with valuer and surveyors, the sellers seem to be compromising on price to lure prospective buyers ahead of the stamp duty deadline. Meanwhile, home buyers could also benefit from stamp duty savings if they make property purchases before the deadline.
According to Rightmove, agreed sales in October were 50 per cent up on the same month last year across the UK. As some of the properties are below thresholds or have qualified for first-time buyer exemptions, nearly 30 per cent of these transactions in the pipeline could still be exempted from stamp duty even after the March deadline.
Demand and activity are strongest in the regions and price range of £400,000 to £500,000. In this price bracket, the number of sales agreed jumped 106 per cent year-on-year in October. This price range is the most popular one as the tax saving to house price ratio is highest in this range. In addition, the final sale took less than 23 days to conclude.
The properties in the price range of £100,000 to £200,000 witnessed an increase of 16 per cent in sales in October. Properties priced close to £500,000 are highly concentrated in the East and South East witnessed an increase of 72 per cent and 69 per cent year-on-year in agreed sales. Sellers sense the risk of buyers pulling out of deals or renegotiating once the tax holiday gets over. Industry experts believe that the market has passed its peak after a mini boom despite the ongoing rush.
Between 8 July and 31 August, more than 225,000 homes were sold due to a surge in deals being agreed within a week when the tax break was announced by Chancellor Sunak, according to Rightmove. Three-bedroom semi-detached homes were the most sought-after choice amongst the home buyers.
As the pent-up demand and a broad desire to secure more space to make lifestyle adjustments soars, Rightmove predicts a potential upside of 7 per cent in the UK property prices for 2020.
According to some media reports, some trade associations have already started calling on the Chancellor to extend the stamp duty holiday beyond March. However, there is still no indication from the government on this.
As the lockdown was lifted and customers started re-opening their businesses from 13 May, the demand for housing has been bolstered by evolving consumer needs and the announcement of temporary stamp duty holidays. The demand for sales properties has been 50 per cent higher than the same period in 2019 along with a surge in rental demand by more than 20 per cent between 1 June and 31 July.
The demand for housing might have come down a bit but is expected to remain steady in the coming months. This is due to the fact that the tax holiday is only applicable on properties located in England and North Ireland. RMV’s own shares ended at GBX 639.80 on 20 November. Rightmove’s market capitalisation stood at £ 5,600.08 million.