The RSMR Weekly Broadcast - the housing market, the stamp duty holiday & the mass exodus

09/02/21

The RSMR Weekly Broadcast - the housing market, the stamp duty holiday & the mass exodus

There's no shortage of knowledge and expertise at RSMR! Each week we get our heads together and talk about events in the world and how investments are affected by them. Our broadcast tackles a wide range of issues facing investors from green gilts to the global shipping crisis and bot extortion to the legislation of tech giants. We like to think of it as cracking content for the financial adviser. Have a read & get clued up...

 

Multiple lockdowns have caused people to reassess their needs when it comes to housing. Do they have the space they want in the right location? Does their property fit working from home requirements in the future? Are there any lifestyle changes that they’re keen to make? 
 
There’s been a surge in transactions recently; versus Q3 we’ve seen an increase of around 37% in terms of residential sales and receipts received by the Treasury from the Stamp Duty Land Tax (£1.8bn) showed a rise of 33% in Q4 compared to the previous quarter, although this was down from the £2.3bn they received in the final quarter of 2019. The stamp duty holiday that started in July 2020 and is due to finish at the end of March this year will have driven sales but interestingly, in Q4, there was a significant increase in transactions of higher value properties that sit outside the £500,000 stamp duty holiday threshold.
 
Houses costing between £500,000 and £1 million saw a massive 59% increase in demand, property between £1 and £2 million a 47% rise and houses over £2 million saw a 37% increase in sales. As all these transactions sit outside the stamp duty holiday limit, there are clearly other forces at work.
 
What’s causing this spike? Lifestyle change must be high on the list, people are moving to other parts of the country to create a different and better life after plenty of time to reflect in lockdown. With the option of home working, London commuters now have the perfect excuse to leave the city for the outskirts or further afield. Lockdown life has highlighted how important the work/life balance is and people are making big decisions about how they want their lives to look when the pandemic is over. 
 
It takes around 22 weeks for someone to move house and the built up demand in Q4 will have been driven in part by many buyers and sellers squeezing this in before the tax break ends. The greatest demand though has been for homes valued between £450,000 and £800,000, outside the London area, so evidence does suggest that the city dwellers are moving into more rural locations. Property in London is still getting snapped up, but house prices aren’t increasing at the same rate as elsewhere in the country. The pandemic has created a craving for the countryside and city dwellers are running for the hills. 
 
The Nationwide House Pricing Index shows what the annual level of growth in the average UK house price looks like. Annualised growth was around 2% from August 2018 to July 2020, apart from a short-term spike from February to April in 2019. Compare this to the end of December 2020 when the year on year growth was 7.3%, the highest level since November 2014. In January the data fell slightly to 6.4%.
 
What’s happening in the housing market? Rightmove found that the number of buyers contacting estate agents through its home listings went up 42% between December and January with an increase of 7% versus January 2020. The number of sales was up 5% year on year despite listings being down 21% in January, so there are clearly a lot more buyers than sellers out there, driving prices up as supply can’t meet demand.       
 
There’s another key issue affecting the market. Lots of  flats don’t meet safety regulations around cladding (the Labour party believes the number could be as many as 4.6 million), and lenders won’t offer a mortgage on these properties. The flats are now unsaleable and unavailable to first time buyers which could seriously impact the housing market going forward. Interest rates may be low but with some lenders having already started to remove the high loan to value mortgages (90%+), it’s becoming more and more difficult for first time buyers to get their foot on the ladder. 
 
The last stamp duty holiday was after the financial crisis and sales fell sharply when it ended, suggesting that we may see a significant dip in sales in April, although the fall might not be as steep given the increase in higher value properties being snapped up around the country. The furlough scheme is due to end in April too which is likely to have an impact as people may no longer have the financial means to move. The average property price now is just short of £230,000, having passed the £200,000 mark back in March 2016, showing that growth hasn’t been that significant over this 5-year period and could indicate that the short-term numbers are an anomaly and will soon drop. 
 
Taking all these factors into account, will the government extend the stamp duty holiday to try and keep the housing market buoyant? Despite a petition presented to MPs last week, signed by more than 130,000 people, the government is currently still insistent that it will come to an end in March. The higher end properties are keeping the market afloat for now, but when the lockdown exodus has died down, will the government need to step in to keep the housing market alive?
 

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