Since the beginning of the Stamp Duty holiday, there has been an overall increase in the price of property in the UK. There has also been an increase in the number of people searching for 95% mortgages. Should this be ringing alarm bells? Here are some points to consider.
The MMR should stop a repeat of 2008
Post-2008, lenders now have to consider a borrower’s real-world ability to repay their loan. This means that they have had to stop relying on “macro” criteria such as multiples of income. Instead, they have to look, in more granular detail, at a potential borrower’s particular circumstances.
This system may not be perfect. It created “mortgage prisoners”. It should, however, at least stop a repeat of 2008. That said, it still doesn’t leave the taxpayer entirely in the clear. For example, the Help-to-Buy Equity Loan scheme ties the taxpayer’s return to the value of the house. In other words, if the price of the house goes down, so does the taxpayer’s return.
With the “new” Help-to-Buy Mortgage Guarantee scheme, the taxpayer will guarantee up to 15% of a 95% mortgage. In other words, if the borrower defaults, the taxpayer may find themselves hit.
The Stamp Duty holiday should end later this year
If the Stamp Duty holiday was intended to stimulate the housing market, then it has arguably done its job. In fact, it may have done its job rather too well. Buyers with sales in progress may be relieved that they have extra time to complete them. It is, however, worth asking whether the Chancellor implemented the SDLT-holiday extension in the right way.
The SDLT discount remains available to all buyers, not just ones with sales in progress. Admittedly, new buyers would need to move pretty quickly to get the full benefit of it. Even if they don’t, however, they may still get the tapered discount which will apply over the summer.
This raises the question of how demand (and prices) will be impacted both now and after the SDLT holiday comes to a complete end. If they stabilize or even reduce, then, everything being equal, affordability will also stabilize or improve.
What’s more, again, assuming that the Chancellor “resets” Stamp Duty to how it was before the pandemic, first-time buyers will still get a Stamp Duty discount. This should make buying a property more affordable for them than for people who are moving on.
Remote/hybrid working may become mainstream
Right now, there is a large question mark hanging over the future of remote/hybrid working. If it does become a mainstream part of the “new normal”, then it could have a huge impact on the dynamics of the property market. In simple terms, it could allow people to move to locations that are off the commuter belt and priced accordingly.
If so, then, over the longer term at least, there could be stagnation or even deflation in city property markets, especially in the central areas. Traditional commuter-belt areas might also fall out of favour as their transport links would be less relevant to people who would be spending less time in a physical office.
By contrast, outlying areas might see higher demand. This could lead to localized house-price inflation, but this is not guaranteed. Even if it does happen, these areas might still remain comfortably affordable.
Economic growth may “float all boats”
In a best-case scenario, post-COVID19 the economy will recover and this will lead to a growth in earnings. If earnings growth outstrips house-price inflation, then buyers’ purchasing power will increase and house-price affordability will improve.
Of course, at present, this is all arguably wishful thinking. It is, however, not unreasonable. COVID19 is being vaccinated away. Brexit has happened and the UK will need to learn to deal with it. Hopefully, therefore, economically, the only way is up.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
Please contact us for more information