What can we Expect From the Pandemic Property Boom?

April 27, 2021

As the pandemic began most people expected the property market to suffer. With the prospect of the biggest economic slump on record. Instead, the reverse happened. Property prices soared. Mortgage approvals leapt and property experts began talking about a pandemic boom. So, what happened and what can we expect in the future?

The pandemic boom

The pandemic boom was down to two factors: Firstly, the introduction of a stamp duty holiday stimulated demand and inflated the market.

Secondly, the pandemic taught people about the benefits of wide-open spaces. The shift to remote working happened with remarkable ease. Many companies say they now intend to make the shift permanent.

Remote working is here to stay and it’s showing people that they don’t necessarily need to live near their office. The big gravitational pull of London has lessened somewhat and people have been looking further afield. Demand in rural areas such as Cornwall has leapt as people look to move away from the city.

It has created a property boom unlike any other. It is driven, not by the market, but by government cash and an unprecedented global pandemic. As such, it is uneven. While prices, in general, have risen some properties, especially flats have struggled. If you’re the owner of a one-bed flat in London with no outside space, finding a buyer is extremely difficult.

Overall, though, the story is of a property market moving at a rapid pace. Mortgages for new home purchases were 38% above the ten-year average in February. The month saw 87,700 mortgages for new house purchases compared to an average of 63,500 for the past decade. People borrowed £6.2bn in February, a five-year high.

The figure actually represents a drop from a peak of 103,700 approvals in November 2020 and January’s figure of 97,400. However, February is traditionally a slow month for approvals, made even more so by uncertainty around the stamp duty holiday announced by the Chancellor. As the end of the holiday approached, experts warned that 100,000 property deals might collapse once it was gone.

Fears that paperwork could not be completed before the deadline, may have caused a slackening of demand.

Renewed stimulus

If so, the barriers fell as soon as Sunak announced that the holiday would be extended for a further three months and with a lower nil-rate band until the end of September. There is, then, every reason to expect a resurgence of mortgage approvals over the coming months. This, combined with the success of the vaccine roll-out, has given the market-fresh impetus. Estate agents are bracing themselves for a busy Easter.

The property market can also expect more good news with the arrival of the Government’s mortgage guarantee scheme. This could see the government back mortgages of up to 95% for properties up to a value of £600,000. The scheme was announced during the budget as part of the government’s ‘Generation Buy’ campaign.

Some lenders will be rolling these products out in April while others, such as TSB, have also launched their own products. This could be good news for borrowers, with a growing range of options for those looking to make their first moves into the property market.

Transferring risk

The scheme is a continuation of an increasingly common government strategy of creating money out of thin air by transferring risk from companies onto the state. In 2009 it did something similar and promised to ensure some of the toxic loans left on the balance sheet of Lloyds Banking Group after the financial crisis. They never had to follow through with the promise.

The Help to Buy Scheme saw them also guarantee loans, while businesses are currently being helped by several governments backed borrowing schemes to help them through the pandemic. The liabilities are stacking up but for the most part, haven’t been activated. It looks like a win/win situation. People and businesses get access to the funds they require, the government sees tax receipts tick up and also benefits from a small fee charged for taking on the risk.

However, if you’re thinking of taking advantage, you should look at the details carefully. According to the Telegraph, the average price quoted by mortgage lenders was 4.07% which could see borrowers paying hundreds of pounds more each month.

Shopping around can help and the market may become busier from April 1st giving some better options, but if you are a first-time buyer you may consider whether it is possible to continue saving to secure a larger deposit and a better rate.

The bright lights of a 95% mortgage will tempt many people but it could be much more expensive over the longer term.

The government’s policies may well have stimulated the market, but it’s not only first-time buyers who have benefited. The Stamp Duty Holiday was also good news for property investors with almost a quarter grasping the opportunity with both hands. Buy to let landlords also took the opportunity to sell or expand their portfolios.

Furthermore, savings from the stamp duty holiday may be offset by rises in price. Prices had already risen steeply throughout 2020 thanks to the cut. According to the Office of Budget Responsibility, the extension would push house prices higher.

Looking ahead, it’s still unclear about the longer-term picture for the property market. The stamp duty holiday will sustain house prices for the first half of the year, but with the economy still expected to struggle, and unemployment at its highest level for nine years, questions will once again be raised about the future of housing prices when we near the latest deadline.

Every stakeholder from sellers to buyers, renters, landlords and investors will feel the impact. Understanding the direction of the market and the implications for finance will be a crucial if delicate balancing act.

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