UK housing market: Stamp duty price boom and mortgages

  • Chancellor Rishi Sunak’s stamp duty price boom exacerbated the UK housing crisis
  • Potential homebuyers priced out due to unaffordable housing prices
  • UK housing market will crash in the next five years, according to the 18-year property cycle predictions
  • UK mortgage approvals surge 20% in February but borrowing levels down from January

Chancellor Rishi Sunak’s stamp duty holiday has accelerated the UK housing crisis as the property price boom has outpaced wage increases, meaning many people are priced out of the housing market.

Even the reintroduction of 5% mortgage deposits and growing availability of mortgage options have failed to help potential buyers as unaffordable housing prices means that many would-be homeowners cannot afford the monthly mortgage repayments.

Many potential homebuyers have been forced into needing to save massive deposits, which is proving difficult due to the impact of rental costs on savings.

According to recent research by industry experts StripeHomes , which analysed UK house price growth across 18 major cities in England, homebuyers can enjoy the tax benefits in just two locations as rising house prices have wiped out the stamp duty savings.

Last July, the average cost of a house in England was GBP 253,441, equating to a GBP 2,672 stamp duty savings. Today, the stamp duty price boom has pushed average housing prices across the country to GBP 266,532.

While buyers are saving roughly GBP 3.3K in stamp duty tax, they will also have to pay GBP 9,764 more than they would have last July to get onto the property ladder.

As housing priorities have changed amid the coronavirus pandemic and more people seek spaces outside of metropolises, most homebuyers purchasing property in the north of England and seaside locations are now worse off by more than 10K.

Research conducted by StripeHomes reveals that homebuyers will benefit from the stamp duty savings in just two major cities – Southampton and Cambridge.

According to StripeHomes, Southampton’s housing prices have risen by a mere GBP 42 since July 2020, while property prices in Cambridge have plunged by GBP 7,349 since the first national lockdown back in March 2020.

The fall in UK house prices as well as the tax grace period means buyers could potentially save GBP 19,201 on property in the city of Cambridge.

That said, many first time buyers are struggling to get on the UK property market due to high private sector rent. Recent data also revealed that nearly 50% of lodgers require government support to pay their monthly bills in some regions of the country.

Among those locked out of the housing market, the younger generation makes up the most significant percentage as many often live in high-priced, poor-quality private rental accommodation.

Lindsay Judge, research director at the Resolution Foundation thinktank, says, “sadly, if anything, the pandemic has made housing even less affordable for young people, and a fresh approach is needed to tackle issues across the housing market.”

So, how should the government resolve the UK housing crisis?

With affordable housing in short supply and the stamp duty price boom expected to ensue following its September-end extension, the UK government will need to introduce a wide range of measures to tackle the property price issue.

Industry experts on UK housing crisis

Industry experts offer solutions for the housing market crisis

Darren Baxter, housing policy and partnerships manager at the Joseph Rowntree Foundation think tank, notes that rising house prices represent a fraction of the issue hindering opportunities to purchase homes.

In an interview with the Guardian, Mr Baxter highlighted the fact wage increases are lagging behind the house price surge and that without “higher levels of security, pay rises and more opportunities to progress in their career, people will struggle to get on the property ladder.”

Mr Baxter went on to say that the UK government needs to do one better than “increasing the supply of genuinely affordable housing and providing more substantial support for renters on low incomes.

“We need to see the social security system strengthened, employment rights improved and continued commitment to increase the national living wage.”

Millions of families and individuals are worried about entering rent arrears due to the financial difficulties brought about by COVID-19, prompting calls for urgent government action to prevent evictions.

While a rent arrears relief package could cost Britain up to GBP 300M, the Commons Housing, Communities and Local Government Committee said that “given the number of potential evictions, it could save significant expenditure on homelessness assistance.”

Until April 2021, the government had increased the Local Housing Allowance (LHA) to cover the bottom 30th percentile of rents. However, the government has frozen the LHA, meaning the gap between rental costs and available support will see the chasm grown once more.

Independent social change organisation, the Joseph Rowntree Foundation (JRF), has urged MPs to reverse the freeze on LHA as rent prices have increased and many people face the risk of homelessness.

Meanwhile, the National Residential Landlords Association (NRLA) said that the government needs to introduce a benefits system that reflects average rental costs in each area to protect residential tenants.

Housing Charity Shelter notes that MPs cannot tackle the UK housing crisis without providing genuinely affordable homes. They added that the British government also needs to address the shortage of homes in the country.

Shelter says increasing social housing will reduce the benefits paid to private landlords and end the housing emergency.

JRF proposes a similar solution and asks ministers to alter the “Right to Buy” rules so that councils can receive profits made on property transactions and reinvest a proportion of that into building new social housing.

That said, housing in London has become more affordable as Nationwide data reveals that the capital is Britain’s worst-performing region for housing prices.

Housing prices in London fall by 4.8% in Q1 2021

According to Nationwide, housing prices in London plunged by an annualised rate of 4.8% in the first three months of 2021 and were 6.2% lower on the previous quarter.

The data comes as several surveys report an influx of property transactions in other regions of the country, namely the north-west, with people believed to be seeking out spaces outside of large cities and in more rural areas with sizeable gardens.

Nationwide noted that north-west England was the strongest-performing region in the UK for house price growth, with the average cost of property in the area up by 8.2% year-on-year.

New-build experts, BuildScan, notes that the country’s hottest spots for homes have changed due to the coronavirus pandemic and that housing prices in other parts of the nation are rising nearly twice as fast as in London.

Rising housing prices have also attracted a flurry of overseas landlords to the UK’s property market, and many have ranked Britain as the top hotspot for residential property investment.

Investors were quick to capitalise on pound Sterling’s (GBP) reduced value following the Brexit referendum as  Ludlow Thompson revealed that the number of UK property owned by overseas landlords hit a five-year high of 184,000 in 2021.

However, the 18-year property cycle theory suggests that a housing market crash is on the cards in the next five years.

The theory, which Fred Harrison pioneered, suggests that every 18 years, the British housing market will crash. After crashing, it will recover for approximately five years, see steady growth for another seven years, undergo one or two years of correction, and then boom for the remaining years before crashing again.

While the theory has been hotly contested, whether true or not, the UK government and other professionals hope that the new Help to Buy scheme will increase the number of homebuyers.


Will the Help to Buy scheme boost the number of homebuyers or lock buyers out of the market?

From April 1st, the existing Help to Buy Scheme will be replaced with a new one that the British government hopes will help those with smaller deposit purchase property.

However, critics have argued that the regional price caps and stricter eligibility requirements could lock buyers out of the market or prevent people from upscaling, as they would not qualify for the support on larger new build properties.

The chronic shortage of housing in the country, which has been exacerbated by lockdown restrictions delaying construction activity, has also reduced the number of options available for prospective buyers.

While recent data revealed that mortgage approvals surged by 20% in February as homebuyers raced to get their transactions over the line before the original deadline for the stamp duty holiday passed, activity is expected to fade further into the year.

Official data released by the Bank of England (BoE) has already shown that borrowing is lower than levels seen in January. While analysts have said, February was a temporary blip, the UK government’s Help to Buy cap could be counter-effective, especially when housing prices continue to surge.