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The third national lockdown has created a perfect storm for the property market, with a slowdown in the flow of new supply for sale as demand rebounds.
The annual rate of UK house price growth is 4.3%, the highest since April 2017. The impetus for growth is coming from Wales, northern England and Scotland where strong demand and attractive affordability allow headroom for above average growth rates.
The rate of annual price inflation is highest in Wales and the North West at +5.4%.
At a city level, Liverpool has jumped to the top of the growth rankings with house prices rising by 6.3% over the last 12 months – this is the highest annual growth rate for 15 years.
Manchester is close behind with a growth rate of +6.0%, back to levels of inflation last seen 2 years ago.
House price growth is at a decade high across three regions – North East, North West, Yorkshire and the Humber – in fact growth is running at the highest since before the global financial crisis.
Affordability pressures are acting as a drag on price growth across southern England where, in 2014 London house price growth reached +20%.
Decade high growth rates of c.5% are low by historic standards yet remain ahead of the growth in household incomes.
Despite the new lockdown, demand for homes has posted the usual seasonal rebound which has been stronger than last year. Demand for homes is up 13% on this time last year, with new sales agreed also up 8%.
This rebound is broadly uniform across all regions and countries. It is a continuation of above average demand and market activity from 2020 H2. The ongoing impact of the pandemic continues to drive moving intent amongst home-owners. Some new buyers will be looking to beat the stamp duty deadline.
In a normal year over 50% would make it, but far fewer are likely to complete a sale in time this year given the volume of business in the pipeline and longer completion times, unless they look to buy a new home.
The flow of new supply onto the market is slower than this time last year, down 12%.
Sellers remain cautious in the face of 3rd lockdown, higher case numbers and calls for people to limit movement, even though the housing market remains open for business.
We expect sellers to list homes once case numbers start to fall sharply and/or we move back to regional tier-based restrictions.
The one area where supply is growing is London with flats accounting for much of this increase.
We believe this is a combination of 1) more owners looking to trade up from flats to houses motivated by a desire for space and more flexible working patterns; 2) investors looking to sell homes in the face of falling rents and expectations of an increase in capital gains tax rates in 2021.
A lack of new listings, together with rising demand and more new sales being agreed is reducing the available pool of homes for sale.
There are currently 6% fewer homes available for sale than this time last year.
This is reducing choice for would-be buyers and will keep an upward pressure on house price growth in the near term, especially if demand remains in line with or ahead of last year.
The impact of the stamp duty holiday deadline on activity has been the focus of intense debate. No-one could have foreseen how strong market conditions would be in 2020 H2 with 47% more homes selling compared to 2019.
Under normal market conditions nearly all homes sold in a calendar year would complete by the end of March the following year – an average of 90-days to complete a sale.
Market evidence suggests this period has extended by around two weeks to an average of 110-115 days or just under 4 months. The chart shows the volume of agreed sales by week number over 2020.
We project forward the sale completions into 2021 assuming it takes an average of 90 days or 120 days to complete a sale – the dotted lines. The stamp duty holiday is in week 13 of 2021.
The range for the number of sales potentially missing the deadline is 36,000 and 105,000. Most buyers that agreed a sale in 2020 would have expected to complete by the 31 March.
Up to 70,000 sales agreed in 2020 may miss the deadline assuming a 4-month completion period. What is unclear is how many sales are 100% dependent upon securing the stamp duty savings.
The more buyers who are wholly reliant on securing the savings, the greater the risk of a spike in fall-throughs. This will have a knock-on impact on chains of sales. No extension of the holiday will result in chains failing or buyers within the chain having to help fund the loss of stamp duty.
The housing market has been one of the bright spots for the economy. While the Government will be eager to start raising tax revenues once again the case for a short, month-long stamp duty extension is growing, to ensure all sales agreed in 2020 complete.
A delayed announcement closer to March would avoid drawing new buyers into the market. As with all tax policy, this is a purely political decision.
The housing market will not grind to a halt without an extension, but we expect a short period of lower sales in Q2 which we have factored into our forecasts for sales in 2021.
The debate on property taxes, their format, who they impact, and potential reforms, will continue to run. It will remain a hot topic of debate given how much of the nations’ wealth is accounted for by the value of UK housing which now exceeds £9 trillion.
Mismatch between supply and demand still driving house price growth, now at 6.0%
The ‘search for space’ has been a factor driving price growth for houses to 7.3%, compared to 1.4% growth in average prices for flats over the last year
UK house prices have increased by an average of £10,246 per property over the past 12 months - the largest rise in value recorded since October 2016.
Buyer demand looks set to ease as the economy opens up but it will remain elevated compared to previous years, which we anticipate will create one of the busiest sales markets in more than a decade in 2021