Reading Time: 7 minutes

UK Property – Rising house prices first-time buyers out of the market

  • UK house prices rise by 8.9% in the year to April 2021
  • Property prices dip but demand expected to stay strong throughout the summer
  • UK Chancellor Rishi Sunak’s stamp duty holiday is pricing first-time buyers out of the property market
  • First-time homebuyers have delayed property plans
  • UK property sales decline as housing supply plummets

UK Chancellor Rishi Sunak’s stamp duty holiday appears to be locking first-time buyers out of the property market, with many delaying home-buying plans due to runaway prices.

According to a survey of 12,000 UK adults conducted by Santander, pandemic property pressures have exacerbated the divide between first-time buyers and current homeowners, who appear to have had an easier time purchasing property during the COVID-19 crisis.

Despite reports from the Bank of England (BoE) that households will have saved approximately GBP 7,000 in the past fourteen months due to coronavirus lockdown restrictions, only 17% of first-time buyers said that COVID had allowed them to save more money.

That compares with 61% of other second and holiday home buyers, with lenders arguing jobs could have contributed to the inability of first-time buyers to save more money than other homebuyers.

The survey also found that nearly 50% of first-time buyers had delayed purchasing plans due to concerns over their finances, compared with 33% of other buyers.

Meanwhile, 52% of first-time homebuyers said that raising a deposit was the most significant barrier to homeownership, with many citing factors such as rising property prices outstripping income growth as the reason for this issue.

Santander’s Life After Lockdown report also revealed that 54% of first-time buyers delayed plans to purchase property amid fears that the bank of Mom and Dad had dried up due to the COVID pandemic.

The retail and commercial bank found that parents contributed more than GBP 18,000 to first-time house purchases in the UK, with the Bank of Mom and Dad running equivalent to Britain’s ninth-largest home-buying lender.

A couple thinking of property purchase after Brexit

First-time buyers struggling to access financial support from their families

Research by Direct Line showed that almost 2 million people had received less financial support from their families since the first coronavirus lockdown, which has raised concerns about the next generation falling under pressure to the economic challenges of COVID-19.

Direct Line expects total contributions from the Bank of Mom and Dad to decline by GBP 1.8BN when the UK government unlocks all areas of the UK economy.

Separate data published by the Office for National Statistics (ONS) has also revealed that over-50s are more than twice as likely to become unemployed than other age groups.

The Centre for Ageing Better warned, “in the past, back-to-work support has not worked for over-50s, and this group is at risk of being neglected again. It’s crucial that in the wake of this crisis, those mistakes are not repeated, or we risk seeing large numbers of over-50s falling out of the workforce for good.”

The ONS noted that 1.2 million over-50s were still furloughed by March-end 2021, with over-65s accounting for 17% of workers in this age bracket – the highest share of any group over 25-years-old.

Although the youngest workers have suffered the most significant fall in employment during the last fourteen months, unemployment among the 50- to 69 age group has been twice as high as those aged 25 and 49.

Still, the youngest workers fell subject to the sharpest rise in unemployment in nearly thirty years last year, data from the Resolution Foundation showed.

The leading think tank noted that those aged 16-24-years-old are now at risk of being locked out of the property market due to record UK house price growth and pressure to plug shortfalls in housing deposit funds.

The disproportionate hit that young buyers have taken to their finances has forced many to postpone their home-buying plans.

With the effects of furlough, unemployment and reduced incomes still lingering due to the ongoing battle with COVID-19, many will continue to struggle with saving for deposits or the costs of renting, especially without the financial support of families.

Santander’s Chief Customer Officer (CCO) Homes, Tracie Pearce, notes that the impact of COVID-19 on the UK housing market has been mammoth, and many people have been forced to reassess their priorities to benefit from the property market boom as a result.

Ms Pearce went on to say that “many first-time buyers have been priced out of the housing market despite the stamp duty savings, low mortgage rates and wide availability of property.”

The Life After Lockdown report also highlights the importance of industry and government support to ensure that the next generation of first-time buyers is not significantly disadvantaged.

Although the UK government introduced a new Help to Buy scheme and a state-backed low deposit mortgage scheme to help people get on the property ladder, house price inflation and low earnings have dampened homeownership prospects.

UK Property Market

Pandemic property rush fuels UK house price growth

According to official figures, average housing prices in the UK surged by 8.9% in the year to April 2021, with property prices in Britain now averaging at GBP 251,000.

Although the average property value declined by 1.9% month-on-month, property prices were still up by GBP 20,000 on April 2020 levels, meaning housing prices had inflated by an annualised rate of approximately 9%.

Despite average UK housing prices being GBP 5K lower than in March, affordability remains one of the most significant barriers to getting a foot on the property ladder for many.

Housing experts have attributed the record surge in housing prices to Mr Sunak’s stamp duty holiday and the shift in working patterns; with more people now working from home, sourcing homes near offices is no longer an essential requirement.

Demand for property outside of large cities has surged amid the coronavirus pandemic, with data from the ONS revealing that housing prices in the Northeast continued to rocket in April, up 16.9% in the year to the month.

While housing prices in London remain the highest in Britain, they retreated from an average of GBP 500,000 in March to GBP 492,000 in April.

Experts also believe April’s price dip was triggered by lower offers from buyers in anticipation of the stamp duty holiday’s termination, as well as concerns over whether buyers are paying over the odds for homes following dramatic growth.

According to the latest reports, a significant number of property buyers put in lower offers during February and March – the period before the stamp duty holiday was initially supposed to end.

According to real estate experts, homebuyers put in lower offers believing that they would no longer have access to the tax benefits worth up to GBP 15,000.

However, some first-time buyers had said their capacity to borrow had been made more challenging as rising property prices had outstripped their incomes.

Still, Hargreaves Lansdown Personal Finance Analyst Sarah Coles believes that the slump in property prices does not spell the end for house price growth, describing the latest data “as a sign of what an arbitrary deadline can do to a market.”

Ms Coles said that while the housing prices decline will more than likely unsettle homeowners, “we do not expect this to be the ultimate turning point for the market, but it’s a useful wake-up call for buyers and a reminder that house prices aren’t a one-way street.”

Britain’s Treasurer introduced the stamp duty holiday in July last year, which allowed homebuyers to save up to GBP 15,000 in tax on property purchases worth no more than GBP 500,000.

Rishi Sunak extended the stamp duty deadline until June-end, after which the tax break threshold will reduce to GBP 250,000 before returning to its standard level by September end.

Since its introduction, stamp duty savings have acted as an incentive for many people, with prospective buyers keen to take advantage of the discount before the scheme terminated.

However, according to recent reports, the UK property market boom is being driven by second-home buyers more than first-time buyers.

Second-home buyers more likely to take advantage of the SDLT break

A recent analysis has found that 22% of first-time buyers were encouraged to take advantage of the stamp duty tax break, compared to 46% of second-home buyers and 44% of buy-to-let investors.

New buyers have also found themselves locked out of several areas due to the growing demand for housing outside of cities.

With more people working from home, there has been a notable shift in home buying areas, and more people are moving to areas with large outdoor spaces and away from metropolitan areas.

According to Santander’s Life After Lockdown Report, 33% of first-time buyers have said they have struggled to find affordable housing in their preferred area, compared to just 11% two years ago.

A separate survey conducted by Curry’s PC World and Ring Security comparing 50 major towns and cities in Britain found that 33% of Brits said last year’s events had changed their housing area priorities.

The survey, which compares 50 towns and cities based on work-life balance, affordability, safety, green spaces and amenities, noted that many people seek out more rural areas with large outdoor spaces or towns and cities closer to friends and family.

Annual housing prices in most in-demand coastal and rural areas have hit double figures over the last year. While pricing inflation is cooling, the lack of supply is resulting in stiff competition for buyers.

While this is expected to keep prices buoyant over the summer months, home buyers appear to be wary about a potential housing market crash, revealed estate agents Barrows and Forrester.

Barrows and Forrester expect talks about a forthcoming UK house price crash to filter through to homebuyers and sellers, which will dampen confidence.

Pick your currency, check the rate

✓ Friendly, fast & reliable service ✓ Secure bank transfer ✓ Excellent Competitive rates
  • (No cash, bank to bank transfers only.)