With all the problems we’ve seen in 2020, nobody predicted the housing market boom we’ve seen recently. But how long will it continue?
This year has given everyone more than their fair share of challenges. From the first UK lockdown in March, the economy practically ground to a halt. Most experts predicted it would be a terrible time for the UK property market.
But it hasn’t been terrible. In the past few months, the UK has seen a considerable spike in property sales and purchases. Estate agents, mortgage advisers and lenders have all reported an unexpected mini-boom in the market.
Why has the UK property market boomed in 2020?
There have been several factors all combining to create the recent boom.
The Artificial Boom
When the first lockdown began in March, everything went on hold. Any property deals not already in the process had to pause. When the doors were opened again, there was a rush of people keen to complete the deals they’d started earlier in the year.
The knock-on effect from that was a massive spike in demand that nobody could handle. Mortgage lenders have been swamped with applications. Land Registry searches are taking much longer to complete. In fact, anecdotal reports are saying there’s currently a three-month delay on searches which would usually have been done in a couple of weeks.
As well as the sudden increase in applications, there’s been the additional problem of companies not having the staff available to work. Companies have furloughed staff or implemented remote working systems which have contributed to the lack of capacity to process the applications.
The Stamp Duty Holiday
To boost the property market, the Government announced a Stamp Duty holiday on all properties worth up to £500,000. The holiday will run from 8th July 2020 through to 31st March 2021 and could bring savings up to £15,000 for property buyers.
This incentive has pushed many people considering purchasing a new property to take the plunge and added to the volume of applications.
Interestingly, research had shown that applications had already started to increase before the Stamp Duty holiday was announced. As such, opinion is divided on how much real impact this had on the market, which was already growing.
The Furlough Scheme
When the first lockdown was introduced, many businesses had to close. The Government created the furlough scheme so companies could effectively lay staff off but retain them with 80% of their wages paid by the state.
Being furloughed gave people an unexpected period to spend at home. They couldn’t go out anywhere or spend money on socialising, and many people found they were saving significant sums of money, even with a 20% reduction in salary. This may have led to a small feeling of wealth and having disposable income which could be used on a higher mortgage for a new house.
Inner-city residents in blocks of flats definitely felt the pain of the lockdown. Being constrained to their apartment with only one hour per day allowed out left many feeling like prisoners and created a desire to relocate to a house with a garden. The lengthy period of fine weather contributed to that as well. Having the time to consider their priorities in life has led many to the decision to move somewhere with more space.
Along with the furlough scheme, families had to change the way they lived with the lockdown. People who hadn’t been furloughed were asked to work from home wherever possible, and schools closed.
Overnight, the house that was fine for everyone to live in before and after work/school wasn’t big enough for all the family to spend all day inside.
Parents and kids ended up fighting for some valuable space to work, which was bearable for the short-term. However, many people and companies have realised the benefits of home working. Businesses expected productivity to fall, but it didn’t. In many cases, people were more productive. They enjoyed the flexibility of being able to combine their home and work lives.
The longer-term effect is families wanting houses with more space so they can work remotely permanently or more often.
What does 2021 have in store for the UK property market?
Predictions for the property market in 2021 are difficult to make, as there are multiple factors to consider.
- The three-month backlog in applications and searches means that buyers have to be doing their deals now. If they start the process in January, it’s unlikely they will benefit from the Stamp Duty holiday which ends on 31st March. As such, many lenders are predicting a slow down in applications from January.
- The furlough scheme also ends on 31st March and businesses will either have to bring their staff back or make them redundant. Many commentators are predicting an increase in unemployment figures to record levels. Estimates vary but range up to 10% of the working population. If that proves to be the case, there will undoubtedly be a knock-on effect on the property market.
- The Brexit effect. Depending on the final deal reached by the Government, this could have significant implications for the UK economy.
So, the picture doesn’t look great for 2021. However, there is a cause for optimism. The last big property crash of 2008 was created by the underlying poorly performing economy. Whereas this time, the economy was performing well up until the lockdown. There is a theory that companies should get back up to speed quicker than in the 2008-2016 period, so it may not be as bad as people predict.