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How COVID has Shaped the UK’s Housing Market

The COVID-19 pandemic has been detrimental to economies and markets all around, and the UK housing market serves as a perfect example of the ramifications of the virus. However, its recent resurgence also showcases the positive results of new government schemes.

Coronavirus’ Impact

On the 26th March the UK government introduced social distancing rules for the property market after coronavirus restrictions were introduced on the whole of the country. Buyers and sellers were urged to be flexible and agree on postponing moving dates, and physical viewings were prohibited. In a context of a recession most sellers were reluctant to place their properties on a market facing a drop in prices, and with no physical visits allowed, many buyers were afraid to commit to a purchase based purely on an online viewing. The result was a nationwide freeze of the property market, inducing a sharp drop in the number of property transactions (cf. 1).

Figure 1: Total UK residential property transactions by month (HM Revenue & Customs)

Since lockdown has eased however, the release of the pent-up demand has resulted in a promising increase in activity as buyers seek to take advantage of the lower market prices. Now armed with the ability to have physical viewings for their properties with government guidelines in place, sellers are able to remarket their properties with recovered pricings, and the window of opportunity buyers had for bottom of the market prices is closing down, resulting in a boom of buyer interest before these prime buying conditions fade. Prices in prime central London however have remained down, as international travel restrictions still in place have limited sales from conventional foreign buyers. This recent revival is not just down to the relaxation of COVID measures but also thanks to several government schemes aimed at revitalising the property market.

Proactive Government Moves

On the 8th July the Chancellor of the Exchequer, Rishi Sunak, stated that “property transactions fell by 50% in May [and that] house prices have fallen for the first time in 8 years”. The result was the immediate introduction of a stamp duty holiday on transactions worth more than £500,000 for first time buyers, home movers and landlords, until the 31st March 2021. The UK government hope that this temporary stamp duty cut ignites a growth in activity and stimulates house prices to increase. For first time buyers, this means that the stamp duty threshold has been increased from £300,000, however, as the average cost of a first-home in England stands at £208,000, the benefits of this cut will mostly impact first-time buyers purchasing in more expensive areas (cf. 2). The stamp duty of existing homeowners was previously at £125,000, meaning the huge jump in stamp duty threshold is set to induce large savings for homeowners looking to move up the property ladder (cf. 3). HM Revenue & Customs stated that this stamp duty holiday however is unlikely to impact property transactions until late August or early September.

Figures 2 & 3: Potential savings for first-time buyers/homeowners between now and 31 March 2021 (Which?)

There have been several other crucial government moves such as the introduction of a furlough scheme, protection from eviction, and emergency accommodation for rough sleepers which has temporarily helped protect the homeless during the pandemic. However, these temporary safeguards would need to continue in other forms in the future to prevent the risk of an increasing number of people finding themselves homeless or rough sleeping in a time of economic difficulty.

A Rejuvenated Market

The saving behaviour of non-homeowners has changed during the pandemic, with some working-age adults even able to increase their savings in the last few months – these savings paired with the stamp duty holiday could trigger a huge spike in new homeowners. Moreover, banks have agreed to extend mortgage offers in the event of delays given the economic downturn during the lockdown period. Albeit the number of mortgage deals has halved since the coronavirus outbreak, there are still many good rates available on the market, especially for those with large deposits. Moreover, according to data published by Knight Frank, the number of potential new buyers registering in the first week of August was 94% higher than the five-year average observed in the week ending 25th July. However, the equivalent increase in property supply was only 54% which indicates that seller confidence is recuperating at a slower rate. Above all, properties valued under £1.5 million have benefitted the most from the stamp-duty holiday, with the number of transactions between July 8th and August 3rd 146% higher than the past five-year average.

What does the Future of the UK’s Housing Market Look Like?

The pandemic has left a mark on almost every single market and has transformed the lifestyle of millions who have had to work from home. While coworking is a consequent rising phenomenon, with the CEO of New Work stating that investors forecast a 200-300% growth in this sector in the upcoming years, recent activity in the housing market has also demonstrated that future residential demand is set to change. Evidence suggests that buyers are keeping the pandemic and it’s ensuing effects in mind, as properties with green spaces, gardens and balconies, as well as those with additional office space, are now more sought after as buyers view these features as key components to a property in the event of future lockdowns and in light of the translocation of the office into the home. As a result, homeowners in the city are starting to look towards the countryside, with commuter towns around London such as Milton Keynes, Watford and Harrow experiencing the biggest increases in demand.

In conclusion, thanks to the introduction of government schemes and the recuperation of market confidence, the property market is resurging. However, the UK must be careful not to move away from the schemes which have facilitated this recovery too soon given present economic uncertainties, with first-time buyers and the homeless most exposed to the ramifications of the absence of such government aid. With surveyors predicting a boom followed by a bust in the housing market – stating that the newly active property market closely resembles the scenario just before the 2007-2008 financial crisis – first-time buyers, home movers and landlords must be ultra-careful before investing in residential property. However, we can say for certain that COVID-19 has changed the landscape of the UK property market for years to come.

Analytics by Afia Allapitchai