What’s happening in the UK housing market?

In March 2020 the housing market, like the rest of the UK, came to a sudden standstill. Lockdown restrictions scuppered thousands of home move plans, grounding those who may have been just days away from picking up their keys and forcing those hoping to put their homes on the market to press pause on their plans. At Lloyds Banking Group alone, the number of transactions completed fell by 57% between March and April.

Unsurprisingly, as things reopened in the summer, the government was keen to get the market moving again.

On 8 July 2020, as part of his Summer statement which included introduction of the Eat Out to Help Out scheme, Chancellor Rishi Sunak announced he would lift the Stamp Duty threshold in England and Northern Ireland to £500,000 – a move mirrored by changes to the Land and Building transaction tax thresholds in Scotland and Wales’ Land Transaction Tax . Anyone buying a home with a value less than this amount wouldn’t pay Stamp Duty at all, while those buying homes with a value above the threshold would only pay tax on amounts above £500,000.

This news, combined with more than three months’ pent up demand, proved to be a much needed shot in the arm. Demand rose rapidly, superseding pre-pandemic levels within a month. But what prospective buyers looked for in a new home had fundamentally changed. 

For months, homes had been transformed from simply being places to live to taking on a myriad of new roles. They became our offices, our schools, our gyms, even our very own exclusive nightclubs (remember Sophie Ellis-Bextor’s kitchen discos?). As buyers searched for more space, and with many feeling less need to be within commuting distance of their traditional workplace, many prioritised criteria that hadn’t previously been a consideration.

Owing in no small part to the Stamp Duty holiday, the surge in mortgage applications that we saw over the summer continued through to the end of 2020 and into 2021. Those transactions completed in the second half of 2020, saved home movers an average of £11,566 on stamp duty costs. This figure increased to £15,000 in London and the South East.

At the same time, the level of activity and demand in the market created a mini boom and saw the average house price increase by £57,790 in the six months to December 2020, up from £373,537  in the six months to June. The Stamp Duty holiday allowed many of those homeowners to offset at least some of that increase. In fact, just 26% of home-movers paid any kind of Stamp Duty in the second half of 2020, compared to 93% in the first six months of that year.

There’s no doubt that the stamp duty holiday, combined strong demand, underpinned a rapid recovery in the housing market, and to that end the extension and subsequent tapering of measures to support activity announced in this year’s Budget was widely welcomed. Those who felt they were on deadline to complete by the March will have really welcomed this breathing space. 

But we all know that those that face the biggest challenges in this market are often the ones that want to take the first step on the ladder, which is why next month’s launch of the Help to Buy guarantee scheme will be monumental for so many. While mortgage approvals remain high, over the last 12 months the average first time buyer deposit is up by £12,000 to £59,000. Targeting the longer term support at this group is the right thing to do.

As for the end of this year and beyond, so much remains uncertain. The pace and level of growth in the housing market is going to be very dependent on the UK’s recovery which, of course, is dependent on so many things, including vaccination roll outs and how confident we all feel.

But we do know that this pandemic has affected households in many different ways. Some will be following the Government’s roadmap out of lockdown with cash to spare, as a result of unexpectedly building up reserves. But others may remain on furlough or face the reality of unemployment, which will have an impact on demand.

This time last year we were facing into the UK’s first lockdown expecting a devastating impact on the market. The 5.2% annual growth in house prices we’ve seen since would have been as inconceivable back then as the thought of wearing face masks 12 months on. We wouldn’t predict, nor expect, the same level of growth this year, but that strong undercurrent of demand is good news for the long term health of the market. 

2020 in numbers:

• In February 2020, the average house price in the UK was £283,428 and the average deposit was 26% of the purchase price (£74,371). One year on, the average house price has increased to £320,457 (up 13%). The average deposit has also increased to around 30% of the purchase price at £94,564 (up 27%).
• Month on Month, the largest increase ('peak') came in October 2020, with a 2.9% rise in average prices compared to September. This coincides with the number of transactions during October 2020 reaching a peak of 72,770 before falling back slightly in November. Transactions then rose again in December to the highest level in the last 12 months at 77,180.
• Regionally, the picture is varied with the South West seeing the largest rise in average house price at 17% and deposit rise of 33%. Scotland’s house prices rose by the least at 2%.