Q&A: ‘We think the housing market is on track for its busiest year since the global financial crisis’
Our head of research, looks at what has triggered the recent boom in housing market activity – and what the outlook is as the stamp duty holiday ends.
Q. Despite the global pandemic, the UK housing market is on course for the busiest year since the financial crisis. What’s behind this record-breaking prediction?
The pandemic has actually triggered a lot of the activity in the housing market. Buyer demand has been strong since the end of the first lockdown last year, as households reassess where and how they are living.
The Government has also introduced the 95% mortgage guarantee, which means there’s a wider range of home loans for first-time buyers with a small deposit to choose from.
Many people feel they need more space, particularly families and those for whom working from home is likely to become the norm.
At the same time, many older homeowners are also re-evaluating their housing needs and moving for the first time in many years.
This demand for more space has led buyers to focus on houses and family homes, meaning more expensive properties are changing hands.
Government initiatives are also boosting activity, with the stamp duty holiday encouraging people to bring forward purchases, while the 95% mortgage guarantee has increased mortgage availability for first-time buyers. The government’s recent announcement about First Homes is also likely to have a positive impact on transactions.
We expect activity to remain elevated in the second half of the year, with total sale completions forecast to reach 1.52 million in 2021.
Q. What’s driving up house prices?
Average house prices rose by 4.1% in the year up to April 2021, up from 2.3% in April last year.
Within this total, there was significant regional variation. Wales saw the strongest growth at 6.3%, followed by Yorkshire and the Humber at 5.4% and the North West at 5.3%.
At the other end of the scale, growth was slowest in London, with house prices rising by only 1.9% during the year to April, while Scotland and the South West posted gains of 3.4% and 3.5% respectively.
Prices are being underpinned by strong demand from buyers, which continues to outstrip the supply of homes coming on to the market, driving property values higher.
Growth is strongest in areas where affordability remains good, with the northern regions continuing to see the biggest house price gains.
Q. Where are the hottest and coldest housing markets across the UK - and why?
Wales, Yorkshire and the Humber and the North West are also the hottest regional markets at present, with properties in these regions moving more quickly than in the normal market conditions of 2017 to 2019.
The time between a property being listed and securing a sale subject to contract has fallen by between 10 and 15 days in all three of these regions. As with house price growth, the good affordability of homes in these regions is a key factor driving the markets.
By contrast, inner London is the coldest market, with homes taking just under two months to sell, two weeks longer than the average for 2017 to 2019.
Annual house price growth in inner London is also lagging behind the national average, at just 0.3%, while four central London boroughs have registered price falls for the third or fourth consecutive month.
London is a global real estate market, and inner London has been hit particularly hard by the global shutdown of international business and leisure travel due to the pandemic. Affordability constraints also continue to act as a drag on the wider London market.
Q. The stamp duty holiday on the first £500k of property is set to come to an end later this month. What impact will this have?
Although sales are currently being agreed quickly, there could be delays in getting them over the line due to a conveyancing backlog. This in turn could have a knock-on effect on whether or not buyers meet the stamp duty deadline at the end of June.
Some 53,500 sales were agreed in England for properties priced at above £250k between 8th March and 4th April. In a normal year, for example from 2017 to 2019, it would take on average three months for these transactions to progress from Sold Subject to Contract to completion.
However, given the uptick in activity over the past year, average transactions are now taking four months. This is because conveyancers, local authorities and mortgage lenders are trying to process record levels of sales.
If the 53,500 transactions cited above take four months to complete rather than three months, these buyers will miss out on the maximum stamp duty savings.
But even after this deadline passes, homeowners looking to move up or down the housing ladder will still not pay stamp duty on the first £250k of a purchase up until the end of September, because of the tapering off of the stamp duty holiday.
First-time buyers will also benefit from stamp duty relief on the first £300k of homes costing up to £500k, as they did before the stamp duty holiday was introduced.
Although demand levels are likely to moderate in the second half of the year as the stamp duty holiday is phased out, we still expect activity levels to remain elevated.
Overall, we think the housing market is on track for its busiest year since the global financial crisis.
Q. What’s the outlook for the months ahead as lockdown restrictions continue to ease?
The full reopening of the economy and the unwinding of lockdown restrictions is unlikely to be simple or smooth.
We have already seen the lifting of the remaining restrictions in England postponed from June 21 until July 19, although they will be reviewed in two weeks’ time.
However, we don’t expect this to dampen overall momentum in the housing market this year. The ‘once-in-a-lifetime reassessment’ has got further to run, and the stamp duty holiday extension and 95% mortgage guarantee scheme will also continue to help people move home this year.
Meanwhile, supply constraints will continue to underpin house prices. But even with the lack of supply hampering some sales, we still expect more than 1.5 million homes to change hands this year.
Mortgage lending soars to record high
The choice of mortgages available is on the rise as competition intensifies among lenders. Here’s what it could mean for you.
Mortgage lending has soared to a record high as the housing market is on course for its busiest year since the global financial crisis.
Homeowners collectively borrowed £35.6bn in March, the highest level since Bank of England records began in 1993.
The strong borrowing was driven by people rushing to complete property purchases before the expected end of the stamp duty holiday on 31 March - although the Chancellor later extended the deadline.
Lending looks set to remain buoyant, with 82,700 mortgages approved for home purchases in March, 13% higher than a year earlier.
The number of people remortgaging was more subdued, with just 34,800 mortgages approved for homeowners switching to a different lender, although this figure is likely to reflect seasonal trends, rather than a lack of mortgage availability.
In fact, lenders are very much open for business, with availability increasing across all corners of the mortgage market.
Keen to know what this could mean for you? Here’s what the mortgage landscape looks like for different borrowers.
First-time buyers
The number of mortgages available for first-time buyers has soared recently as banks and building societies flock back to lending to people with small deposits.
There are now nearly 200 different mortgages available for people with just a 5% deposit, up from only a handful at the beginning of the year.
The increase has been boosted by the launch of the 95% mortgage guarantee scheme, where the government ‘guarantees’ mortgages for buyers with 5% deposits.
But there is also a wide choice of mortgages available outside of the scheme, while renewed competition in this part of the mortgage market has led to a drop in average interest rates.
There has been a strong increase in the choice of mortgages available for people with a 10% deposit too, with the number of different deals soaring to nearly 500, compared with only 100 in the same period last year.
Meanwhile, the choice of mortgages for those with a 15% deposit has tripled, as recent strong house price growth has made lenders more confident about offering mortgages to people with small deposits.
But while the number of high loan-to-value mortgages - in other words, loans for people with small deposits - is on the rise, research suggests lenders are still picky about who they lend to.
A study by Aldermore found that only one in five first-time buyers were able to secure a mortgage on their first attempt, with the most common reasons for rejection being a poor credit history, not having a large enough deposit, not being on the electoral roll and being self-employed or having an irregular income.
The findings highlight the importance of taking steps to improve your credit worthiness before making a mortgage application to give yourself the best chance of success.
Existing homeowners
Homeowners moving up or down the property ladder currently have lots of choice, with the total number of mortgages available increasing every month so far this year.
There are now more than 4,000 deals on offer – 50% more than this time last year, bringing us close to pre-pandemic levels.
While existing homeowners typically have larger equity stakes in their home than first-time buyers, the greatest level of choice is no longer reserved for those with a deposit of 40% or more.
Instead, while there are more than 500 mortgages available for borrowers with a 40% deposit, the highest level of choice is for those with a 25% or 20% deposit, with more than 700 deals available in each tier.
And although average interest rates are holding steady, individual lenders are launching eye-catching deals as they look to win new business, with some offering rates of below 1%
However, the increase in competition has led to the average shelf-life of a mortgage – the time for which it is available before lenders withdraw it – falling to just 28 days.
As a result, borrowers will have to move quickly to secure a deal before it gets pulled by the lender.
Buy-to-let investors
Mortgage choice has also soared for buy-to-let investors, with nearly 2,500 different mortgages available to choose from. That's 1,000 more than last year - and more than there were in 2019 too.
A combination of strong house price growth, high tenant demand and rising rents, as seen in our Rental Market Report, has made lenders feel more confident about offering mortgages to investors with only small deposits, with 12 deals recently launched for people with just 15% to put down, ending a period in which the minimum deposit for buy-to-let was 20%.
There is also increased choice for people with a 20% deposit, with nearly 150 loans to choose from, compared with just 19 a year earlier.
Investors who have a 25% deposit have the most choice with nearly 900 mortgages available, more than double the number on offer 12 months ago.
There is more good news for landlords, as interest rates on buy-to-let mortgages have been on a steady downward trajectory since the start of the year, as competition in this sector of the market continues to hot up.
This trend has been seen across both two-year and five-year fixed rate deals and mortgages at all loan to value ratios, pushing average interest rates on two-year fixed rate products below 3%.