What do gold, tech stocks, and Britain’s housing market have in common? Even though there is a global pandemic and the UK is experiencing its deepest recession ever, all three are on the rise.
The gold price always inflates when there is financial uncertainty, and stock market investors continue to be infatuated by the big tech companies, but why is the housing market buoyant? More to the point, is now a good time to buy?
Second-quarter performance of the British economy was woeful, down by a fifth, yet house prices were about 1.7% higher than the same time last year. And, although no official data is available yet, according to the Royal Institute of Chartered Surveyors, July showed a spike in both houses coming to market and enquiries from prospective buyers. So, what’s going on?
The COVID-19 Effect
Some of this growth is no doubt the effect of the bottleneck caused by COVID-19. At the start of lockdown the housing market was effectively frozen, and for seven weeks nothing happened. When the government allowed the reopening in mid-May, it was like the cork coming out of the bottle. This might be expected, all those sales that had been put on hold were now free to move ahead. But why the continued growth? What is fuelling it?
Stamp Duty, What Stamp Duty?
The move by Chancellor Rishi Sunak to give everyone an eight month break from stamp duty until the end of March 2021, certainly helped. No stamp duty on homes costing less than £500,000 could save the average home buyer over £2,000, not to be sneezed at in a cash-strapped economic situation. No one likes paying tax and that counts double when times are hard. This will cost the government something to the tune of £1.3 billion, an amount the Treasury obviously thinks is worth it if the economy can be boosted by the move.
Property website Zoopla’s Richard Donnell, their Research & Insight Director, said, ‘Stamp duty holidays are a tried-and-tested way to support housing market activity. [This] will ensure almost nine in ten sales will be free of the tax, compared to just 16 per cent now.’ So, it’s a big deal.
It isn’t likely it will help first time buyers as any house they buy that is £300,000 or less is already exempt from stamp duty, but they should benefit from a shift in the willingness of vendors to sell, knowing they have a chance to save on their next property.
The Market is on the Rise
The pause on the market, combined with the stamp duty savings and the additional time spent at home, is likely to be the cause of the rise in the market. According to Rightmove, prices are up 2.4% since the lockdown began and the average asking price of a house offered for sale is a staggering £320,265.
The fact that people are having to spend so much time at home – and the additional time freedom of no commuting or social life, is likely to be another boost to the market, as people realise that they need more space or would be happier elsewhere in the world.
Many people also want to take advantage of their additional time to move when it is easiest to coordinate. With so many people working from home and home schooling, it’s much easier to work around a move or take less time off to do it.
The pandemic has also forced many people to reflect on their passions and whether or not they’re happy in their daily lives, and many who have found the answer is “no” are moving to find greener pastures.
How Long Will the Boom Last?
So, it looks like the market will continue to bubble through the summer. How long it will afterwards is not clear – as with any boom, there will be an end to the explosive growth. The effect of any COVID-19 second wave is a threat, as is the ending of Whitehall’s furlough scheme in October.
Lucian Cook is the Director of Residential Research at Savills, and while he agrees house sales are vibrant at the moment, he thinks this won’t lead to dramatic price increases: ‘We expect the market to remain price sensitive over the rest of this year and the early part of next.’ This will be reassuring for anyone who is thinking of moving later this year and early 2021.
Is it a Good Time to Buy?
If you were thinking about moving and want to take advantage of the stamp duty to not only buy your next property, but sell your current property, then it’s definitely worth setting the wheels in motion, especially if you’re in a financially strong position. Mortgage interest rates are good, so you could get into a good position by moving sooner rather than later.
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