There is no doubt that 2020 will go down in history as one of the most troubled and confusing years of recent times. The covid-19 pandemic that has swept the entire world – and is still ongoing – sadly led to tens of thousands of deaths, and hundreds of thousands of recorded cases of the virus. Across the globe, governments made the difficult but necessary decision to lockdown entire cities – and in some cases whole countries – with devastating results for the individuals and for commerce and industry.
In the UK lockdown was enforced on 23rd of March when the government concluded that it was the only way to prevent the National Health Service from being overwhelmed. The directive restricted people to leaving the house only when necessary, and only essential shops and services were able to continue in business. The result was an almost-complete halt for the high-street retail trade.
The housing market came to a halt too, with job uncertainty and a reluctance on the part of lenders to agree terms making it difficult to sustain. With social distancing in place, house viewings became an impossibility. Towards the end of June, non-essential shops were allowed to open. Soon after, pubs and restaurants were also given the green light, with certain restrictions in place. For many it was a surprise that July saw the highest average UK house prices on record.
Estate agents across the UK are reporting a massive boom in enquiries, and mortgage companies are again offering a full range of products. Yet all of this is happening at a time when the UK economy is in dire trouble, and we are undoubtedly heading into a colossal recession thanks to the cost of the covid-19 crisis. Why is this? There are three main reasons, so let’s take a look at them.
1. The ‘Boris Bounce’ Pre-Covid 19
The house market was in good health in the early months of 2020. Following the General Election things picked up, and in January mortgage approval levels reached the highest seen in 4 years.
However, once the lockdown took place – in want is traditionally the busiest season in the housing market – many transactions that may have been agreed or come close had to be put on hold. A good proportion of these will now have been completed, with homeowners eager to get back on track.
Another interesting factor that industry commentators believe is driving the post-lockdown boom is a direct result of the enforced isolation itself. Many households were necessarily spending more time in their homes. Rather than being out for the day and only getting to see the house at night for a few hours, they found themselves looking for ways to occupy themselves.
Furthermore, it’s thought that for a lot of people the reality dawned that, in fact, they needed a bigger house, or were not as keen as they thought on the one they were living in. Once lockdown was over, a trip to the estate agent was high on the list.
2. The Stamp Duty Holiday
The government recognised the upcoming problem with the housing market – an important factor in the UK economy – and duly announced a change in stamp duty levies in July with immediate effect. Provisionally in place until next spring (2021) homes costing less than £500,000 will not be subject to stamp duty during this period. The average price of a house in the UK is far less than the threshold – it’s currently under £250,000 – hence most transactions will be exempt.
With a sliding scale of reductions above the threshold, now is a sensible time to move to a new house and save money at once. This has led to many who were considering moving to seal the decision and put the wheels in motion. Estate agents have reported many more enquiries for valuations and for available properties throughout the UK.
3. The Demographic Effect
The covid-19 pandemic has led to many people having to work from home for the duration, and also sent many smaller businesses out of action – some permanently. Where it has hit hardest in terms of future job security is among the lowest paid persons. Those in jobs that are less secure than others have also been affected.
This class of worker is not the average homebuyer. The businesses that have used the furlough scheme are also those that employ largely lower-paid workers. They will more than likely have to cut back on their staff levels to offset the cost of the pandemic. Given that most of those furloughed are known to have been in the late teens to early 20’s age-group, and the average age of the first-time buyer is now 33, it is clear that the general house-buying public are not those most affected.
What Does the Future Hold?
It is a certainty that the UK – and likely the rest of the world – is heading into an economic recession that will be among the worst we have experienced. The government is aware of this, and alongside the covid-19 pandemic we are also dealing with the troubled transition of Brexit. In addition, the immediate future with regard to covid-19 is desperately uncertain. The day before this article was written, the government clamped down once again on groups of people meeting, with only six allowed together in one place.
There is still a chance of a second lockdown as cases in the UK continue to rise, and this would again impede the housing and other markets. The industry-wide view is that while the current boom is to be welcomed, it is likely to be short-term no matter the future of the virus. Jobs will be lost, unemployment will rise, and many who were would-be buyers will not be able to go ahead as planned.
There is a long way to go before we return to anywhere near to normal, but as things stand the housing market is at least rallying. For how long it can do so remains to be seen.