One of the biggest take-homes from the Covid-19 pandemic is the value of space – and having plenty of it.
Many of those living in smaller abodes – flats, apartments, maisonettes, etc. – may now be considering upsizing to a bigger home where conditions are less cramped. Future local, and even national, lockdowns have not been ruled to mitigate a suspected second wave hitting during the winter months, so many people will be looking to act now to move into a bigger house before that happens.
Second steppers – those who have bought a smaller first home and are now looking to move up the property ladder with something more spacious, potentially as a place to raise their family in – are likely to be especially active.
But how easy is it at the moment for the second stepper and upsizing demographic to buy and sell at the same time? Will their forever or family home now be cheaper as a result of Covid-19? Will there be more competition? And how will the recently-announced Stamp Duty holiday help?
Are prices falling?
A big worry during a crisis the size of the coronavirus pandemic – which has been the most severe and wide-ranging since World War Two – is a massive housing crash. This was seen during the global financial crisis of 2007-9, when prices fell dramatically and many were left in negative equity. 100% mortgages were a complete no-go and even 95% and 90% mortgages were viewed with considerable caution.
However, in spite of the huge unintended consequences of Covid-19 – from mass job losses to the effective paralysis of vast areas of the UK economy – a housing crash has yet to materialise.
In fact, since the market reopened on May 13, the recovery has been remarkable as a combination of pent-up demand and those delayed or foiled by coronavirus returning to their transactions has led to a significant rise in demand, activity and completions. The positive sentiment pre-pandemic, which lead to the first few months of the year in the housing market being coined as the Boris bounce, has returned much quicker than expected.
And the housing crash that many feared has so far been kept at bay. In April and May, when the property market in the UK was effectively frozen, property sales were a huge 50% down year-on-year, according to data from HMRC.
However, since viewings and moves were allowed again from mid-May – albeit with protocols and restrictions in places – there has been a mini boom in the market.
While UK house prices dropped in June according to Nationwide and Halifax, the average asking price of property coming to market in July is up 2.4% compared to March, Rightmove revealed recently, while buyer enquiries are up 75% year-on-year.
Meanwhile, our House Price Forecast
(June 2020) indicates that a surge in housing market activity post-lockdown will prompt a 1.9% increase in house prices between June and September.
While buyers still took a cautious approach when the market first reopened, by the time we reached June it was a different story. The evidence from almost 10,000 conveyancing quote forms completed in June suggests that it was a strong month for both volumes and price rises, with many buyers deciding to press ahead despite longer-term economic uncertainty. June 2020 saw the highest volume of conveyancing quotes recorded on reallymoving since January 2018, showing how much serious intent there is from both buyers and sellers.
Annually, according to our forecast, prices will decline by 1.4% in August before increasing by 4.7% in September.
Demand is being driven by people reassessing their priorities – looking for more space, a garden, a better work/life balance and places with lower population density – and also by lockdown breakups and divorces
. As people break up and move out, there are naturally more people looking for new places to live.
Although higher prices might put some buyers off, as a second stepper or upsizer you can look forward to a higher price for the home you currently live in, which could give you more wriggle room when it comes to setting your budget for a move upwards. Demand for the home you are living in shouldn’t be an issue at the moment, with all the portals recording record levels of interest of late, all over the country.
However, you probably will face some intense competition when trying to buy a home, with many people having similar thoughts to you about a property with more space or a bigger garden. It may pay dividends to act early and decisively, and to make sure you are well prepared for buying and selling at the same time (if that is your plan).
Stamp Duty help for all buyers
The market, which was already recovering well from its lockdown freeze, received a further boost in early July when the Chancellor Rishi Sunak announced in his Summer Statement that there would be a Stamp Duty holiday for all buyers on homes worth up to £500,000 in England and Northern Ireland. Scotland and Wales have since introduced similar holidays.
The holiday will last until the end of March next year and came in with immediate effect. It offered a particular boost to the first-time seller/second stepper market and those looking to upsize, as Sunak revealed that 90% of main home buyers would pay no Stamp Duty at all between now and 31 March 2021.
Stamp Duty can be a significant cost for many purchasers – depending on the price of the property it is likely to be the single biggest cost other than the deposit when it comes to buying a home. So, the incentive now offered to buyers is considerable.
It’s also a boost for sellers, too, as it will drastically increase demand, with Rightmove revealing that traffic on its site surged by 22% in the 30 minutes after the Chancellor’s address to the Commons.
The number of potential purchasers contacting agents about property for sale on the day of the announcement hit a new record, marking a 93% increase compared to the same day last year, while the website also enjoyed 8.5 million visits - its biggest ever audience in one day.
Elsewhere, rival portal OnTheMarket delivered a record number of leads to agents and developers on the day of the announcement, with sales leads up 12% on the previous Wednesday, and valuation leads rising by 19%.
The UK’s second largest lender – Nationwide Building Society – also witnessed a rush to its online mortgage affordability tools in the aftermath of Sunak’s announcement, up by 49% and 61% respectively. Meanwhile, at 1pm on Wednesday 8 July – just moments after the tax holiday was announced - traffic to Nationwide’s mortgage site was 70% higher than the previous week and another spike was experienced at around 7pm, possibly as family discussions about moving home were had.
Buy to Let landlords and holiday home investors – who could potentially be the buyer of the home second steppers are selling – also benefit from lower Stamp Duty as a result of the changes, and may be encouraged to act now while the holiday remains in place.
While some have raised concerns about a transactions surge before the Stamp Duty holiday ends next year, leaving surveyors, conveyancers and mortgage lenders unable to cope
with the sheer volume of demand, and Labour have called it a huge bung to Buy to Let investors
, many have welcomed the changes.
Is now a good time to move on up?
In a period of record low interest rates, a Stamp Duty holiday and motivated buyers and sellers eager to move quickly, now could be one of the best times for a long time to make the move up the ladder, even in spite of the challenges caused by Covid-19 and the topic it removed from the national headlines, Brexit.
Although some are concerned about house prices tumbling as the furlough scheme ends, unemployment rises and the full devastating economic effects of coronavirus rear themselves up, others argue that it’s impossible to tell how the market will perform – with more data and trends required before any definitive conclusions can be made.
For now, conditions seem perfect for second steppers and upsizers to make hay while the sun is shining. Unless you are buying a very expensive home, you are unlikely to pay Stamp Duty on your purchase if you act soon – a tax relief previously only reserved for most First Time Buyers – and the mortgage market is looking increasingly competitive.
As the Land Registry points out, the Stamp Duty holiday will be especially felt in London, where, according to the body’s figures, the average price paid by an existing owner-occupier is £546,525. This compares with £282,247 across England as a whole. Paying Stamp Duty only on the portion above £500,000 means buyers would now only face a bill of £2,326, even for a costly London home — a hefty £15,000 discount from what would have been faced before.