I think we can all agree that 2020 didn’t go the way any of us initially thought it would. January on its own was quite eventful across the world, from an invasion of locusts in Eastern Africa, to a volcanic eruption in the Philippines. Yet all were quickly overshadowed by the outbreak of COVID-19. National lockdowns and socially distanced meetings became the ‘new normal’ and Zoom reached a peak of UK users of approximately 1.7 million by the end of November 2020. The country was looking positively towards 2021, however just a few days in and we are already back in lockdown.
Yet despite all this, the housing market did, and is doing, surprisingly well.
The announcement of the first UK lockdown brought a sudden halt to the property industry, as moving home and construction came to a standstill. But when it reopened in May, pent up demand brought life back to the housing market. July brought even better news with the announcement of the Stamp Duty Land Tax (SDLT) holiday. This sparked a sudden interest in property investment and naturally an increase in property value.
Highlights from 2020:
- Mortgage approvals reached their highest levels in 13 years for house purchases, as it increased by 97,500 transactions
- The sales pipeline by end of December 2020 was 50% larger than December 2019
- The UK saw the rise in house prices finish at an outstanding 6.6% when compared with 2019
Despite a second lockdown, the attraction to UK property never faltered. The housing market ended the year on a high note, with sales continuing to spike until the very end. According to government predictions, residential transactions during November are an estimated 115,190, 8.6% higher than October. The Guardian also estimated that an additional 100,000 property sales are expected to complete within the first three months of 2021, as potential buyers rush to complete before the end of the SDLT holiday.
Key factors during 2021
However, we’re not out of the woods yet. There are four significant moments in 2021 that will determine the future direction of the housing market. But what are these key changes we’re to witness over the next 12 months?
Spring Budget and the end of the stamp duty holiday
The Spring Budget is set to be released in March and will highlight several issues surrounding the plan for tackling the virus and protecting jobs.
It will also discuss the ending of the SDLT holiday. There have been calls for an extension, but nothing on this matter has been confirmed yet. With the end now in sight, potential buyers are rushing to meet the deadline.
Q1 2021 is likely to continue the busy streak we witnessed in Q4 2020. Zoopla has estimated that just 54% of sales agreed at the start of the year will be completed before the deadline. With such a large percentage unlikely to make the cut, what happens to pre-arranged stamp duty free deals? Mainstream lenders are overwhelmed, with many already experiencing severe delays. This means that whilst many loans will be arranged under the assumption they’ll be processed before the SDLT holiday end-date, there could be further setbacks if – once we hit the 1st April – those remaining must be renegotiated.
Buyers are relying on the discount provided by the SDLT holiday to purchase a bigger property. Whilst a fall in sales after the end of the holiday is expected, extensive delays could cause potential completions to fall through. But until the Spring Budget announcement in March, we will have to sit patiently and prepare where we can.
Mortgages having to be re-arranged is likely to consume a large amount of the banks time, increasing timescales further. Alternative finance can therefore be a favourable option for property investors. A bridge loan, for example, from a reputable lender can see funds deployed in as little as 3 days. This keeps the property market moving at a vital time in British history, relieving stress caused by delayed long-term finance.
End of the Furlough Scheme
With many commercial and hospitality businesses having to remain closed for several weeks during 2020, the sharp rise in unemployment shouldn’t come as any surprise. The UK reached a new record of redundancies made between August and October 2020. This resulted with 370,000 employees losing their jobs. It’s estimated that the number of unemployed will rise to 2.6 million by mid-2021. But how does this affect the housing market? Halifax has estimated up to 5% drop in property value due to the potential rise in unemployment. After the continual increases throughout 2020 however, this predicted decrease might not be as bad as it initially looks.
The group likely to be hit hardest are first-time buyers. Zoopla’s latest data reveals that there’s been a 10% decrease in the number of homeowners under the age of 45. With the rising threat of unemployment, this number is likely to drop even more. The pandemic has already made it difficult for first time buyers to purchase a property, with 90% LTV mortgages almost impossible to find. With no equity to fall back on, it appears the next few months could see many potential homeowners having to use savings or move back home with family if they find themselves unemployed.
New builds are often favoured by overseas buyers as well as first time buyers. With little movement to be seen by first-time buyers, this area could see a drop in value. April is set to see a 2% surcharge on overseas buyer’s SDLT bill though, so a drop in house prices may work in the favour of overseas property investors.
The effectiveness of the Covid-19 vaccine
With vaccines now in the process of being distributed, there’s hope that we might soon be able to visit family, friends, and maybe even have a cheeky drink at the pub without having to order a ‘substantial meal’.
Unfortunately, the threat of a new strain has come to light. Cases are rising once again. The PM has had no option but to put the country into another lockdown as of the early hours of 6th January, following the lockdowns set by Scotland and Wales. The PM stated that this is due to the speed of transmittance being 50 -70% faster than the original strain of COVID-19.
But, if there’s one thing that brings the property market out of a rut, it’s positivity.
Despite the gloomy news, evidence suggests that the recently deployed vaccines will still work against the new strain of Coronavirus. To date, over 600,000 people have received the first of their two injections. In his latest speech on the 4th January, Boris Johnson stated that – all going well – everyone in the top 4 groups will have received their vaccine by the middle of February 2021. There’s hope that most UK adults will be have received the vaccine by the end of 2021. For the first time in almost 12 months, there’s a glimpse of pre-pandemic Britain. This alone can be enough to encourage the market to open back up and bring back a strong appetite for property, particularly for city dwellers.
Should the positive news surrounding the vaccines continue, a resurrection of the once bustling streets, city nightlife and walking to the office, is likely to re-entice buyers back into the cities.
The Brexit Deal
It’s been over 4 years since the announcement of the UK leaving the European Union. Since that moment, there has been great uncertainty about the likelihood of a no-deal Brexit, and what this would mean for the future of the UK.
Until the 24th December 2020.
We were, in the end, able to proceed into the new year with a deal. Whilst travel may become slightly more complicated and food trade may hold some restrictions, this deal brings good news for Britain. For one, the fear of increased taxes and food shortages has been avoided.
This little piece of certainty has come at a critical time for the housing market. Alongside the current stamp duty holiday, this good news will be key in keeping the property market optimistic and resilient in the coming months.
March and April will likely hold the biggest changes this year. Until the release of the Spring Budget, all we can do is enjoy the current rush of property investment and hold our breath. But one thing can be certain – the bridging industry has been fundamental throughout the past 12 months. As mortgage requests flooded in, bank restrictions grew tighter and delays pushed back completion dates, bridging loans became a positive alternative for property investors to receive fast finance.
Here at MFS, we’ve topped up our £60m COVID-19 recovery fund, for those who need an urgent bridge loan due to the aftereffects of Coronavirus. Many lenders have removed products or restricted criteria causing them to pull out of agreed deals. If you, or your client is, looking to complete on a property investment opportunity in the upcoming months, why not contact our underwriting team to discuss it today.