Data from the Halifax House Price Index shows that average house prices have increased by 7.6% in the year to November and by 1.2% between October and November. That’s in spite of COVID19 and Brexit drawing ever closer. Can house-price increases continue into 2021 and beyond? Here are some points to consider.
The impact of the Stamp Duty holiday
The Stamp Duty holiday was, effectively, a time-limited special offer, albeit on tax. It’s due to end on 1st April 2021. This could lead to a mad scramble over January 2021 as buyers rush to put in offers while they still have at least a chance of completing before the deadline. After this, however, the realities of conveyancing are going to reduce the relevance of the tax break.
It’s also worth noting that the Stamp Duty holiday didn’t benefit first-time buyers as much as it did onward movers and investors. This is because first-time buyers already benefited from a reduction on Stamp Duty. In fact, there’s a case for arguing that they may actually be better off when the Stamp Duty holiday ends and they are the only ones with the Stamp Duty break.
Potentially, the end of the stamp duty holiday could see a greater percentage of first-time buyers enter the market. This would, however, depend on a number of other factors most of which relate to their ability to finance a property purchase. In other words, it would depend on whether first-time buyers can put together deposits and get mortgages.
The state of the mortgage market
The key question here is arguably whether or not the government is likely to involve itself in the mortgage market. If it does, there are several moves it could make. One is to work with regulators to ease off the rules on affordability. This move would, however, carry two obvious risks.
Firstly, there’s the risk that lenders simply wouldn’t take up the opportunity to use more relaxed lending criteria. Secondly, there’s the risk that the government could find itself in another bail-out situation if they did. After all, if they encouraged lenders to relax their lending criteria, then it might be difficult for them to refuse to accept any blame for the consequences.
The government has extended the Help-to-Buy scheme while restricting it to first-time buyers. It has also mentioned plans to make it possible to buy houses with just a 5% deposit. It’s unclear whether or not this was a reference to the confirmed Help-to-Buy scheme or something else.
The issue of remote working
If remote working becomes an established part of the “new normal”, it could have massive repercussions for the property market. What’s more, it might only take a very low-level of adoption for the impact to be felt. Assuming a five-day work-week, staff working remotely for just two of those days could be enough to change the dynamics of the property market.
On the employer’s side, encouraging remote work could allow them to reduce their need to rent commercial property. It would also allow them to continue to benefit from the investment in remote infrastructure they would have had to have made to keep going during COVID19.
On the employee’s side, the less often you have to go to the office, the less you have to worry about minimizing your commuting time and the more you have to think about your home-office space. This could encourage buyers to move out of traditional commuter-belt areas and into areas where they can afford larger homes with space for decent home offices.
If so, the end result could be an overall adjustment of property prices. City-centre locations and traditional prime commuter-belt towns could see less demand and therefore potentially lower prices. That said, current homeowners might simply choose to stay put unless they were forced to move. This might create an environment with fairly stable prices but few transactions.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Comments