What is the State of the Real Estate Market?
There isn’t an area of the economy that hasn’t been hugely impacted by the arrival of the pandemic. But the real-estate market, which is largely seen as a bellwether for the economy in general, has been especially buoyant.
In April, the price of the average house in the UK rose by 2.1%, which amounts to the largest monthly rise since 2004, according to data from Nationwide. Year on year, the rise has been around 7.1%, which is just slightly short of the previous record set in December. Data from Marsh Commercial, a specialist real estate insurance broker, suggested a transitioning market prior to the pandemic – with an increasing focus on natural catastrophes (of which Covid-19 is surely one).
A number of factors have influenced this boom, but it’s the prospect of a stamp duty holiday that’s been most influential. According to the building society’s chief economist, Robert Gardner, it was the expectation that the stamp duty holiday would end that effected the slowdown in price growth during march, and the extension of the holiday that began to push prices back up.
The stamp duty holiday exempts sales of houses for less than £500,000 from stamp duty. It is set to continue in England and Northern Ireland until the end of June, at which point the cap will shrink down to £250,000. Then, at the end of September, it will come back down to £125,000.
The availability of finance is another key factor. The base rate set by the Bank of England is lower than it has ever been, and the government has incentivised lenders to offer 95% mortgages to first-time buyers, via a scheme of guarantees which runs until the end of 2022.
There are only a limited number of homes in the UK, and yet demand is rising steadily as more would-be homeowners come into the market. This, according to industry experts, could create a ‘super-boom’, where house prices skyrocket.
One might suppose that any boom would be followed immediately by a correction, especially since many of the factors that contributed to the boom, like the stamp duty holiday, and the mortgage guarantees, are no longer going to be around. However, there’s another thing worth considering: the broader recovery of the economy increasing the available spending power of homebuyers.
The Bank of England has recently upgraded its growth forecast for the economy, suggesting that we may see the fastest growth in GDP since the Second World War. With homebuyers having all of this extra spending power available, they will be able to put in more generous offers – which will push up prices in the aggregate.
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