UK property market reacts to stamp duty holiday decisions

  • Property market shows first signs of slowing down in Nationwide Housing Price Index data
  • UK house prices fall, but mortgage approvals continue to soar amid strong consumer demand
  • Industry reports a surge in Retirement-Interest Only (RIO) mortgages
  • Chancellor Rishi Sunak is debating whether to extend stamp duty holiday

According to Nationwide’s Housing Price Index data, UK house prices have declined for the first time in six months ahead of the stamp duty deadline.

Housing price growth slowed from 7.3% in December to 6.4% in January despite the UK property market remaining open during the third national lockdown.

Nationwide data also revealed that house prices slumped by 0.3% month-on-month, marking the first monthly decline since June 2020, before the stamp duty holiday came into effect.

However, separate data showed that homeownership surged for the third successive year. UK property values are also 27% higher than pre-recession and almost double than averages seen during the 2007-8 financial crisis.

According to Nationwide, housing prices in the UK now average around GBP 229,748, up from GBP 155,701 following the financial crisis.

UK property buyers, Good Move, has also forecast further growth as they predict UK housing prices reaching GBP 279,641 in 2030 and GBP 392,301 by 2050.

Chief Economist at Nationwide, Robert Gardner, noted property market trends have changed amid the pandemic and that shifts in housing preferences will likely continue to provide the industry with some support in the coming months.

He added that the slowdown in activity and house price growth is primarily due to a “tapering of demand as the stamp duty holiday draws to a close, which in effect, encouraged buyers to bring forward plans to purchase property.”

Mr Gardner also noted that housing prices rose to a six-year high in 2020 despite the UK facing a double-dip recession, unemployment almost 1% higher and mutant COVID-19 strains posing further headwinds.

Fine & Country Managing Director, Nicky Stevenson said the “predicted collapse in UK house prices has failed to fully materialise, given that evidence shows that the property market remains near strong annual price growth.”

Although Chancellor Rishi Sunak’s stamp duty holiday has fuelled the spike in housing market activity, rocketing house prices have outweighed the stamp duty’s savings for most people.

UK Property Market

UK property market continues to witness strong consumer demand

Given that the property market’s activity remains strong, this could suggest that buyers and sellers are not put off by uncertainty over the stamp duty holiday’s termination and that other factors are driving buying behaviour.

While UK house prices fell in January, vendor inquiries increased yet again in the week ending January 31st. Demand for rental property also rose last week, as landlords bounced back from the economic downturn triggered by COVID-19.

Although many estate agents and home buyers are rushing to get their property purchases across the line before the tax break ends, Yomdel Founder & CEO Andy Soloman, said: “Buyers and sellers appear determined to be active in the market whatever happens next”.

According to the latest data from Yomdel Property Sentiment Tracker (YPST), there have also been signs of potential momentum building towards new activity in the housing market, regardless of the stamp duty decision.

One of which being demand for retirement interest-only mortgages (RIO), which has gained traction in the year to 2021 irrespective of the pandemic.

Retirement overseas

The market for RIO mortgages expands despite COVID-19

According to Moneyfacts, retirees can now take advantage of 109 RIO ( Retirement Interest-only Mortgages) mortgage deals from 22 different providers in 2021, up from the 74 deals available pre-pandemic.

While growth in this market has been steady, the boom in lender competition is promising news for older borrowers as it offers a greater choice of products and services from a broader range of lenders.

Moneyfacts also found that the average interest rate on RIO mortgages has only risen by 0.12% in the past year to 3.59% in January, down slightly from December’s rate at 3.60%, which could be a sign of a downward trend.

These positive shifts in interest rates and the availability of choice and lenders for RIO mortgages suggest that providers are exploring new ways to evolve and meet demand.

Nonetheless, the stamp duty holiday’s termination will inevitably cause housing market activity to slow in the near-term, especially with unemployment forecast to rise following the furlough scheme’s conclusion April-end.

However, Yomdel Founder & CEO, Andy Soloman, said that the UK property market could surprise us all as it did in 2020 and display incredible resilience. He said that “we must look at 2021 differently, recognising that consumer motivations have changed, along with their tolerance for and ability to adapt to challenging circumstances.”

But while the housing market could have a few more surprises up its sleeve this year, many fear that the stamp duty holiday’s deadline will unleash turmoil in some parts of the housing market. As a result, several industry leaders and MPs have called for the Treasury to extend the tax break deadline by six months.

stamp duty holiday

MPs urge Rishi Sunak to extend stamp duty deadline

With the stamp duty holiday deadline fast approaching, Rishi Sunak has come under mounting pressure to extend the tax break to prevent a “completion chaos” on March 31st.

Thousands of buyers are expected to lose out on the stamp duty savings due to the time it takes to process housing applications, which now takes an average of 20 weeks to complete instead of 12 due to staff absences triggered by COVID-19 lockdown restrictions.

Some buyers have told agents that they would be unable to go ahead with property transactions without the extra finance that the stamp duty provides, and as a result, a tsunami of deals could collapse March-end.

MPs across parties are urging the Chancellor to extend the deadline or taper its end amid the concerning cliff-edge scenario, which could cost the property sector billions of pounds (GBP).

On Monday, MPs held a debate regarding a petition that has received over 139,000 signatures calling for the stamp duty tax break to be extended until September-end.

While there was cross-party support for the holiday extension, several MPs, including Lib Dem minister, Sarah Olney, argued against extending the scheme. Sarah Olney stated an extension would “deprive the Treasury of much-needed funds at a time when there are many extremely pressing calls upon our public finances”.

Treasury minister, Jesse Norman, also seemed to imply that the tax break would not be extended beyond March 31st, albeit he acknowledged the risks facing the industry.

However, he said that it would be inappropriate to “comment on tax policy outside a fiscal event”, meaning estate agents, buyers, mortgage lenders and others affected by the holiday will have to wait until the March 3rd budget before hearing anything more on the matter.