COVID-19 News: Housing Market In The UK Cools in 2021 As Stamp Duty Holiday Ends

Will UK house prices fall? Yes! That is what already happening in the UK due to the ending of the major part of the Stamp Duty Holiday. As it returns to previous indices in September this year, the levies will return to what they were in 2019. Namely: the sum of first-time-ever purchase of a property that’s freed from the Stamp Tax will be £125,000 again, and so, a buyer will have to pay £5,000 already from the purchase of £300,000 instead of paying the same for a 600,000-pound object, which was up to mid of 2021.

Overview of the current housing market UK

The Stamp Duty Holiday increased the average market prices for all types of real estate in the UK by an average of 2.2% a month throughout 2021 by July (starting with Dec 31, 2020). July’s prices on average were 13.5% higher than on January 1, 2021. However, this situation changes already, starting with August 2021.

According to Right Move’s house price index, the average cost of a house for a family to live in grew up by 2.4% in July compared to March 2021. But now the boom has stopped, obviously, as the average August prices are -0.3% from the ones in July.

In August, the first-time steppers bought a house for £208,714 on average; the second-steppers bought it for £309,643. The top of the ladder was ready to spend £616,421 on average.

As for the latest news on the UK housing market in the regional trends, they are as follows (for the latest month). In Scotland, the decline is 1.0%; in North East, it’s -0.6%; East of England showed a decline of 0.2%; East Midlands fell by 0.1%; South East fell by 0.5%; London fell the most – by 1.5%. London also has the biggest average number of days to wait for the sales deal to complete: 55. The lowest number is in Scotland – 23.

On the other hand, there are regional markets that grew for the same period. Yorks. & Humber added 1.1%, North West added 1.5%, South West added 0.4%, and Wales demonstrated the biggest growth by 2.3%.

On the yearly basis, the average asking price (in all segments and territories) for a house grew from around £320,000 in August 2020 to £337,000 in August 2021 (although, it somewhat fell compared to June 2021, from £338,000). That’s not the actual price of deals, though, which are slightly lower.

One of the most indicative marks for a housing market is the number of days needed to secure a buyer for a property object. Nationwide, as the Covid-demic finalizes, the indicator drops sharply: from 65 days in January to 51 in March, 41 in May, and 36 in July. The same for London is similar although the drop is neither linear nor dramatic, as nationwide: 72 in January, 64 in March, 57 in May, and 55 in July.

Looking at London’s situation for the latest month, we see only about half of the boroughs lost in price, while others gained some. Let’s look at the boroughs that lost the biggest: Brent (-2.1%), Westminster (-1.3%), Havering and Kingston upon Thames (-1.2% both), Haringey (-1.1%), and Kensington and Chelsea (-1.0%). Hammersmith and Fulham rose the most by +1.40%. Generally, as we’ve already mentioned, London lost 1.5% on average (consider the price of sales on its housing market).

Speaking of the numbers of sales than the pandemics affected, in the UK and Wales, the biggest decline was registered in April 2020, when 24,570 objects were sold (a drop of around 60% compared to March’s 60,621). However, the gap was swiftly closing each next month of 2020, being completely restored by September (61,388 objects) and swiftly going further up, to max in December (75,278). That means people understood that pandemics neither will last nor will be too devastating and they wanted to secure their capitals by investing them into real estate (which turned out a very smart move).

What is the average mortgage interest rate UK?

Looking at the situation with average mortgage rates in the UK, nearly all types of mortgages tend to fall in 2021 compared to 2020:

• 2-year fixed mortgages fell from 1.86% in December 2020 to 1.52% in April 2021
• 3-year fixed mortgages fell from 2.04% to 1.67% for the same period
• 5-year fixed mortgages fell from 2.00% to 1.74%
• 2-year variable mortgages fell from 2.19% to 2.1%
• The only thing that rose was a 10-year fixed mortgage that increased to 2.58% from 2.53%.

Although the newer market analysis is expected to continue the trends with fresher stats, we can analyze the rates of the biggest banks on the market as of now. What we see is that the trend for lowering is obvious. For instance, in HSBC alone, the fixed rates are 0.89-1.14% for 2-year loans, 0.99-1.24% for 3 years, and 0.96-0.99% for 5 years. Although all these rates are followed by flexible rates, increasing the cost to 3.54% after the fixed terms come to an end. The offer is given for 60% LTV but varies with the increased sum of it (from 70% to 90%). For instance, for 90% LTV, only a variable offer is presented in the bank products, which starts at 3.49% annual, being capped to £550,000 of the max loan amount. If you’re considering taking a bank loan to finance your purchase, then consider applied requirements for having it as well, as the booking fee, the max allowed yearly overpayment sum, the total amount payable (which depends on the effective loan rate, not nominal), and, certainly, a list of requirements to a person who wants to take a loan (as banks in 2021 tend to refuse to more applicants that in 2018-2019 given the harder-than-usual economic situation).

House prices sold UK analysis for 2022

We are now trying to make some more or less feasible predictions for the UK market of real estate in 2022. First of all, by the end of 2021, the prices will continue to drop (with a more visible curve after September 2021 – the term of the complete end of the Stamp Duty holiday). Some market specialists say the drop is expected as high as 9% (compared to December 2020). But that will still keep the average prices of January 2022 higher by about 4% compared to January 2021.

In 2022, the major restrictive economic factors will be public spending limitations, rising inflation, and higher interest rates. It’s also expected that small investors with 1-3 properties will stop buying and it’s unlikely that larger investors will also expand too much. They could all take the ‘waiting position’ to see how the cooling market will react to the further possible waves of lockdowns due to new strains of Coronavirus, about agile mutations of which humanity did not think in 2020. Also, there will be no further incentives from the government to facilitate the purchases of homes or lower taxes.

Considering the restrictive factors, the majority of experts does not predict a sharp decrease or increase in prices in 2022. But there are hopes for a slight decrease, which can fluctuate between 1% & 2%. On the other hand, the housing market has recovered the fastest among all markets in the sectors of the UK’s economy, so the number of deals is expected to rise, which shall pull the prices up. In addition, the number of deals for renting apartments and homes steadily increased through May-August 2021 nationwide, which also means heating up the prices of rent, which indirectly affects the prices of sales. At least, the ones that are asked.

The trend of new construction in the UK, which adopts ‘green’ standards to correspond to the wishes of the future buyers, creates more homes suiting the demand, which shall take some hidden tension off the table, where existing objects did not correspond to what people wanted and, hence, they were not bought-and-sold. As this factor adds to the number of objects sold, together with the rest of the factors named above, there is a potential for price growth by around 3-4%. Combining positive and negative factors, we shall receive the average growth by 1-3% in 2022.

Some analysts think that the stamp duty’s end will be such a strong factor that it will continue in 2022, pulling the prices down by the end of 2022 by 2.5%. However, nearly all market specialists tell that by the end of 2025, the prices are expected to grow compared to the level of December 2021 by 3-5%.

Conclusion

It is sure that prices in the UK’s real estate market go down until the rest of 2021. As for the next year, predictions are not transparent – yet it is obvious that there won’t be sharp jerks unless a total national lockdown is reintroduced. If you have been waiting for the right moment to buy your first (or next) real estate, October-December 2021 is the best time to do it in the UK. However, the decision shall depend on the cost of the property plus the Stamp Duty. Thus, if you save more by buying now than after it’s forfeited, then you have only the rest of August and September alone to complete your purchase.