housing market ‘busiest since 2007’

It’s been quite the year for the housing market, with a frenzy of activity that has prevailed despite the headwind of a global pandemic. One in 16 homes will have changed hands by the end of December, according to property portal Zoopla, with 1.5 million transactions taking place this year. It means that 2021 will have been the busiest year for the housing market since 2007.

A combination of factors has got us here, including increased buyer demand and a lack of homes, which have pushed prices up almost 7 per cent in the past year, say Zoopla. The average house price is now £240,000 but of course that masks a range of differences across housing stock and up and down the country. Growth has not been even, with the biggest rise in property prices seen in Wales (10.8 per cent growth) and northwest England (9 per cent rise).

The capital has not fared as strongly as some of these regions, with price growth of 2.3 per cent. But then it is all relative – property prices in London are starting from a much higher level, with many people struggling to buy in the capital because salaries can’t keep up. Those areas where price growth has been strongest have historically been at a lower pricing point than other parts of the country, so a rise is more visible and significant. If buyers think this year (or next) is the time to find a bargain in the capital, they are likely to be disappointed.

stamp duty boost and improving stock levels

Of course, it’s not just buyer demand and lack of homes for sale which have stimulated growth in prices. The stamp duty holiday, introduced in July 2020 to give the housing market a kickstart, has done that and then some. Since it finally drew to a close at the end of September, the market has calmed a little, as buyers brought forward purchases in order to benefit from the saving.

Lack of stock continues to be the problem as the race for space is ongoing. Larger homes in commuter and rural locations are in particularly short supply. Houses are especially popular, with values rising by 8.3 per cent in the past year. Flats have not performed so well, with prices rising by just 1.6 per cent over the same period. Estate agents report that flats with no outside space are suffering the most as demand for such properties has fallen considerably, thanks to the experience of living through lockdown.

The number of houses for sale is less than half that of historical levels, while the stock of flats to buy is down 15 per cent. However, Zoopla expects supply to pick up in the new year with a flurry of listings anticipated after Christmas, as the festive season gives people time to reconsider their living situation.

We have been suggesting for a while that one way of boosting supply is to cut or remove stamp duty for downsizers, encouraging them to move out of family homes into smaller properties if they so desire, and freeing homes up for those moving up the ladder. The stamp duty holiday has been such a huge success in boosting the housing market and wider economy as a whole, it is worth introducing some form of tax break in a targeted way.

cheap borrowing

Another factor stimulating activity in the market has been the Bank of England’s decision to cut interest rates to 0.1 per cent in March 2020, enabling borrowers to benefit from some of the cheapest mortgages ever seen. This has helped fuel growth in property prices, with borrowers able to stretch themselves to afford that bigger detached house with the garden because they could lock into a sub-1 per cent fix for five years and keep repayments at an affordable level.

Soaring inflation is increasing the possibility of an interest rate rise (or two or three small increments) although the Monetary Policy Committee doesn’t seem to be in any hurry. With its next meeting on 16 December, and the Bank having not raised interest rates in the month of December for 45 years, it doesn’t look as though it will pull the trigger until February (the next meeting after that) at the earliest.

optimistic outlook

The housing market is expected to normalise next year as rising inflation pushes household costs higher.  Even with interest rate rises, mortgage rates are likely to still be affordable and relatively cheap. Lenders are keen to lend and have money available to do so, which will support activity in the housing market.

We also expect to see investors continue to look for opportunities into the New Year. Demand from these has picked up in recent months and this trend looks set to continue.

how bridging finance can help

There has been strong demand for bridging in the past year with soaring demand to get transactions done quickly, mainly in order to take advantage of the stamp duty holiday. With so much demand for the right property, buyers have had to respond more quickly than they might have done in the past. Bridging finance effectively turns purchasers into cash buyers, enabling them to leapfrog competitors who may be relying on more traditional mortgage finance.

At MT Finance, we can approve a bridging loan within hours, lending from £50,000 up to £10m at up to 70 per cent loan-to-value. Please get in touch for more information by filling out our quick enquiry form.

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