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Insight – is now the right time to buy a property?

  1. 14 September 2020
  2. By Andi Michael

With so many changes since lockdown was lifted, now could be a great time to move home - but is it right for you?

In mid-May the property market exploded back into life after a near two-month shutdown, and activity, demand and sales have been on a level not seen for quite some time. Rightmove recently revealed a record month for property sales, with more than £37 billion worth of transactions between July 12 and August 8.

Property sales were up 38% year-on-year and 20% higher than the previous record set in March 2017, just before the changes to mortgage interest tax relief came into play.

The mini-boom is showing no signs of slowing down either, with the weekly sales figures between August 5 and August 12 up by 60% compared to the same period last year, as buyers potentially replaced their summer holiday with a house move instead.

The Stamp Duty holiday, record low interest rates, changing priorities, radically shifting work patterns, a competitive mortgage market and a desire to act before local or national lockdowns become more likely again is all helping to drive demand.

But is now a good time to buy, or will there simply be too much competition? Is it better to wait to see if prices fall a bit or act now while buyer conditions are favourable?

Stamp Duty holiday maintains demand

After lockdown was lifted and moves were allowed again, there was significant pent up demand, as well as new potential movers who had re-evaluated their living situation during lockdown. Adding the Stamp Duty holiday to that meant that the market was only going to continue to boom.

The temporary holiday, introduced immediately on July 8 and coming to an end on March 31 2021, means that nine out of 10 main property buyers will pay no Stamp Duty when purchasing a home, according to the Chancellor.

While it was a headline-grabbing announcement, not that much actually changed for a large proportion of buyers. Currently, first-time buyers make up the biggest proportion of the buying market, nearly doubling over the past decade.

Although the total number of first-time buyers has fallen to a seven year-low this year due to the pandemic, the latest data from Halifax still found first-time buyers making up over half (52%) of the property market, up from 38% in 2009. The share has steadily risen since the introduction of Help to Buy and other first-time buyer initiatives.

As such, a considerable number of buyers purchasing at the moment will be first-time buyers, for whom the recent Stamp Duty changes won’t really have any impact, unless they are purchasing a home worth over £300,000.

Instead, it's the second stepper and downsizer markets benefitting most from the Stamp Duty holiday on homes worth up to £500,000. Second steppers – those moving on from their first home to a bigger property– would have been hit with fairly significant Stamp Duty costs before July 8, which might explain why this part of the market has witnessed a 38% increase in sales, according to Rightmove.

If you are a second stepper, now is the time to act if you don’t want to pay any Stamp Duty on your purchase. If you leave it too late, there is a chance the purchase won’t be completed before the holiday deadline hits. Stamp Duty is only payable once a transaction completes, so if your purchase doesn’t complete until after March 31 next year, you are likely to face the normal levels of Stamp Duty on your acquisition.

Downsizers, too, may be taking advantage of the Stamp Duty holiday to move from a larger property to something more suitably sized, with Rightmove finding that sales of larger homes were up by 59%. 

Prices stay high despite Covid pressures

Many experts were predicting a massive fall in house prices as a result of Coronavirus and the nationwide lockdown brought in to prevent it, but a housing crash of the magnitude witnessed during the last global crisis in 2008 has not yet materialised.

Prices have, in fact, remained remarkably stable, buoyed by high demand and strong buyer and seller sentiment.

If, as a buyer, you were hoping to snap up a bargain as a result of Covid-19, you may be disappointed.
According to our Reallymoving House Price Forecast, house price growth will see a sharp spike when sales complete in the autumn due to ‘exceptional levels’ of post-lockdown demand.

Our house price forecast uses agreed prices compiled from homebuyers who typically register for moving services 12 weeks before completions, while also accessing retrospective Land Registry price figures.  

It predicts that average agreed house prices will experience an annual rise of 11.4% to £333,331 in October, a 6.1% growth from September’s predicted average of £314,235. Overall, we are expecting agreed prices to grow 8.1% between June and October. 

This isn’t set in stone or guaranteed, though – it depends largely on how demand holds up. Our forecast showed that the spike in demand could be short-lived if the economy and jobs market struggle to support themselves without government and lender support. The furlough scheme, which has kept a considerable number of people on the payroll during the pandemic, is set to finish at the end of October, while a number of tax rises are being mooted to pay for the cost of coronavirus.  

So, by leaving things a few more months and biding their time, could potential buyers benefit from lower house prices? That could be the case, but there are absolutely no guarantees things will play out that way.

If you’re a second, third or fourth stepper, and looking to take advantage of the Stamp Duty holiday, waiting a few more months to purchase could mean you risk losing out on the tax cut. The current favourable market conditions – with interest rates at historic lows, and a competitive mortgage market – may also not last forever. However, if you feel that prices are currently inflated in the area you want to move to, it may be better to wait.

Buying now to be in before Christmas

Most buyers like to be settled in their new home before Christmas, and time is running out for that to possible. Buyers acting now will have a much greater chance of pushing through a purchase before things slow down again in December.

There are additional factors to consider this year, too, with the potential for further local or even national lockdowns as we near winter and the start of the annual flu season. It’s not completely out of the question that a further freeze of the property market will come into play, or at least the reimplementation of restrictions on moving home.

The buying process also looks very different at the moment, with virtual viewings encouraged as a first port of call and a very different in-person experience, which means things could take a little longer than usual.

If you are sure about moving and definitely want to be in your new home before Christmas, it's better to make a commitment on a property sooner rather than later.

Mortgage market slowly recovering

Money and credit statistics for July from the Bank of England in September showed mortgage approvals had increased to 66,300 in the month, up from 39,900 in June. However this was still 10% below the pre-Covid level of 73,700 in February, leading the Bank to label the market as ‘weak’. 

Net mortgage borrowing stood at £2.7 billion in the month, below the average of £4.2 billion in the six months to February 2020. Then again, this is hardly surprising when the property market was out of action for the best part of two months.

Conditions for borrowers are still favourable, with historically low interest rates, lenders jostling for business and the slow return of 90% and 95% LTV mortgages, which should place buyers in a good position when it comes to getting a good deal on their mortgage.

Overall, there is more favouring buyers than not at the moment, but this could change sharply as the furlough scheme winds down, unemployment rises and lenders become more cautious again. 

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