Coronavirus: what it means for mortgages
While one in nine homeowners have taken a mortgage holiday, the UK's lowest ever interest rate means it's worth keeping a close eye on mortgage deals available to you.
What’s happening in the mortgage market?
In March 2020 the Bank of England made two emergency cuts to the base rate, The cut from 0.25% to 0.1%, made in response to the coronavirus pandemic, means the base rate is at its lowest level in the Bank’s 325-year history.
In the immediate aftermath of this reduction, banks and building societies withdrew some of their mortgage products.
Among the most common deals to be pulled were tracker mortgages and loans for people borrowing a high percentage of their property’s value.
The number of different deals available has continued to fall in April, dropping from a total of 3,192 mortgage products at the start of the month to 2,548 now.
The good news is that lenders that had pulled products are beginning to launch new deals for both fixed rate and tracker mortgages.
Eleanor Williams, finance expert at Moneyfacts, said: "It’s very positive that we are beginning to see providers return products to their ranges and launch new deals, including some in the higher loan-to-value sectors.
"These changes may be an early indication that lenders have begun to adapt to the exceptional economic and operational changes of recent weeks in order to continue supporting their customers, and that hopefully more providers will be following suit in the days ahead."
How much choice is there if I'm looking for a new mortgage deal?
While the number of deals available has continued to fall since the beginning of April 2020, there are still more than 2,500 different mortgages to choose from.
Choice is widest for people with large equity stakes in their homes or big deposits to put down, with 541 different mortgages on offer for people looking to borrow 60% of their home’s value and 520 for those borrowing 75%.
What if I only have a small deposit or equity stake?
Unfortunately, choice for people looking to borrow a high proportion of their home’s value has been more affected.
The number of deals for people with a 5% deposit has dropped from 162 at the beginning of the month to 55 now.
The situation is slightly better for people with 10% to put down, with 127 different loans available, although this is significantly lower than the 326 deals available on 1 April.
Even so, there are still a variety of different deals for borrowers to choose from, while new offers in this space are being launched all the time. For example, HSBC introduced a new tracker deal for people borrowing 90% of their home’s value last week.
In short, if you need to remortgage but have only a small equity stake in your home, you should not be put off from doing so.
What is happening to mortgage rates?
The good news is that mortgage rates are falling in response to cheaper borrowing costs for banks and building societies themselves.
The average cost of a two-year fixed rate mortgage has fallen from 2.36% on 1 April to 2.13% now, while the cost of a five-year fixed rate deal has dropped from 2.66% to 2.37%.
Rates have fallen across the board, not just for borrowers with large equity stakes in their properties.
In fact, one of the biggest reductions is to the cost of an average five-year fixed rate loan for someone with just a 10% deposit, with this dropping by 0.61% since the beginning of the month.
Is it a good time to remortgage?
Although there are fewer mortgages than before the market was impacted by coronavirus, there continues to be a good choice for borrowers.
It is also expensive for homeowners to sit on their lender’s standard variable rate (SVR), the rate people typically revert to when their existing deal comes to an end.
The average interest rate charged on an SVR is currently 4.61%, compared with an average of 2.13% on a two-year fixed rate deal.
As a result, someone with a £200,000 mortgage would save nearly £3,240 a year by switching from their lender’s SVR to a new deal.
What should I do if I need to extend my mortgage offer?
While mortgage offers are normally valid for three months from when they are made to when borrowers draw down the funds, lenders have agreed to extend this period for an additional three months in light of the current property market conditions.
If you need to extend your mortgage offer because your house move has been delayed due to the current lockdown, you should contact your lender and tell them about your situation.
Coronavirus: how you can still buy and sell your home
Lawyers, developers and estate agents are working hard to keep the cogs turning as efficiently and safely as possible during the coronavirus lockdown.
We may all be following social distancing rules under the coronavirus lockdown but that does not mean your property search or home sale is completely on hold.
"There is a slight silver lining in that cloud that we are starting to see," says Charlie Bryant, CEO of Zoopla. "Number one: people have kept their properties on the market.” The number of homes for sale is currently only one per cent lower today than on March 7.
"Having that stock will be really, really important to enable a bounce back once the market reopens. I wouldn’t go as far as saying it’s a green shoot, but it’s a seed in the ground."
The number of new property sales agreed in the UK has fallen by 70% since the start of the coronavirus restrictions and the government's guidelines to moving home.
But in the second week of lockdown there was a rise in people browsing properties.
When you're stuck in a home you've outgrown, trying to work remotely while entertaining energetic children, that's exactly the time you decide you really need to make plans to move.
"We have in fact seen a slight single digit increase week on week," says Charlie. "And in the lettings space we have seen a 16 per cent week on week increase in lettings browsing levels.
"We tend to find with the lettings market that it is counter cyclical - when people feel it’s not the right time to buy, they turn to lettings.”
Unprecedented times - but temporary
"The property market has not been forced to an immediate halt – we must remember Covid-19 is temporary and we will recover," says Amy Hazelton, senior paralegal at law firm Blake Morgan.
"We may even see the market recover with first-time buyers who realise they need their own space after being locked down with family or flatmates.
"People have extra time to sit and trawl through agents' sites and Zoopla. They may think about a move they have not had the time to consider before and some may even spend the time considering investment opportunities in the market."
Should I keep my home on the market?
It's really not such a bad time to be selling your home. With the majority of people stuck at home without much to do, many would-be house hunters are spending their time browsing for a new home online. So, if your home is already on the market there is no reason to withdraw it.
It's also worth noting that the government has not banned property transactions from going through. Instead, it has said that if the property being bought is empty, the sale can continue as normal.
It is only if the property is currently occupied that it is encouraging people involved in the transaction to agree an alternative date on which to move.
Can estate agents take on new listings?
Their physical offices may be shut but estate agents are still open for business, albeit working remotely from home.
That said, it is difficult for them to take on new properties at the moment, as the current social distancing rules mean they cannot visit your home to take photographs and measurements for the listing details.
But don’t let that put you off if you're thinking of selling your home.
Estate agents will still be able to talk to you by telephone to advise you on how much they may list your property for, subject to a physical viewing once restrictions are lifted, and to give you an idea of the market in your area.
They are also likely to be having similar conversations with potential buyers, so they may be able to line up some interested parties to view your home once the lockdown is over.
What is happening to mortgage rates?
The good news is that mortgage rates are falling in response to cheaper borrowing costs for banks and building societies themselves.
The average cost of a two-year fixed rate mortgage has fallen from 2.36% on 1 April to 2.13% now, while the cost of a five-year fixed rate deal has dropped from 2.66% to 2.37%.
Rates have fallen across the board, not just for borrowers with large equity stakes in their properties.
In fact, one of the biggest reductions is to the cost of an average five-year fixed rate loan for someone with just a 10% deposit, with this dropping by 0.61% since the beginning of the month.
Is it a good time to remortgage?
Although there are fewer mortgages than before the market was impacted by coronavirus, there continues to be a good choice for borrowers.
It is also expensive for homeowners to sit on their lender’s standard variable rate (SVR), the rate people typically revert to when their existing deal comes to an end.
The average interest rate charged on an SVR is currently 4.61%, compared with an average of 2.13% on a two-year fixed rate deal.
As a result, someone with a £200,000 mortgage would save nearly £3,240 a year by switching from their lender’s SVR to a new deal.
Is it a good time to remortgage?
Although there are fewer mortgages than before the market was impacted by coronavirus, there continues to be a good choice for borrowers.
It is also expensive for homeowners to sit on their lender’s standard variable rate (SVR), the rate people typically revert to when their existing deal comes to an end.
The average interest rate charged on an SVR is currently 4.61%, compared with an average of 2.13% on a two-year fixed rate deal.
As a result, someone with a £200,000 mortgage would save nearly £3,240 a year by switching from their lender’s SVR to a new deal.
Can people still view my home?
Assuming your home is already listed with an estate agency, they can continue to market it, but potential buyers won’t be able to view it in person until the current social distancing measures are lifted.
That said, people can still get an excellent sense of what your home is like through doing a virtual tour.
Some estate agents created these tours using 3D cameras to offer a high-definition, 360 degree walk-throughs of their clients’ properties before the lockdown came into force.
Andy Marshall, our chief commercial officer at Zoopla, says: "We have seen an upsurge of 215 per cent in virtual viewings of new-builds.
"While this is partly in response to coronavirus, we anticipate that online and virtual tours are quickly becoming the new normal. Online viewings afford convenience and flexibility."
If your agent was not able to create one for you before social distancing was introduced, you could have a go at creating your own using the video on your mobile phone.
While it may not have the same professional touch as one created by an estate agent, it should still give potential buyers a good sense of how your home looks.
What if someone makes an offer?
If you receive an offer, there is nothing to stop you negotiating and accepting it.
But you do need to be mindful that the selling process is likely to take longer than usual.
The government has advised people to delay exchanging contracts while the current lockdown measures are in place.
Your buyer may also face delays in having a survey done on the property, as surveyors have been told not to carry out non-urgent work.
"Our move will happen - just at a later date"
Katie Beardsworth, 34, from Hull, is in the process of buying a new home in North Tyneside. Katie, who runs a classical music artist and project management company, was hoping to move in late April with her husband Robert and three-year-old son Sam.
"I was looking forward to walks on the beach. It would have been more sustaining than the local park for the 100th time. But the benefit of not moving yet is living in a network of neighbours we've known for eight years.
"We've been on quite a journey buying. At first we wanted to stay in the area but move to a bigger house, but after quite a few houses fell through, we realised we wanted to totally change and live by a beach.
"We have everything ready for exchange, but we won't move forward further until we know we can actually move in. We're in a small chain - a first-time buyer is buying our three-bed terraced and the owner of the four-bed we're buying will be moving to an empty house.
"We've had reassurances that everyone is happy to wait and the estate agents and solicitors, all working remotely, have been great throughout the process. Our survey was done the day before lockdown and we'd signed all the paperwork by post. I've had to answer a few queries by email rather than post, but that's a welcome change. Our mortgage provider has been very helpful, calling to tell us when the mortgage offer will end and that there will be flexibility to extend if we need to.
"Now I'm quite philosophical - it will happen when it happens. But when lockdown first happened, I was upset. I'm a big planner and I'd been planning how I was going to organise new childcare and make new friends so moving home was less disruptive for my son Sam. Now that doesn't feel as important - he's already had a massive transition from nursery to being at home with me all day and I know we'll all be fine.
"I'd say there's no point in stressing about things that you can't control."
The lawyer's view on the timeline of buying and selling during lockdown
Amy Hazelton is senior paralegal in the new homes team at law firm Blake Morgan.
"Depending on the stage in your transaction, going ahead with a purchase may now mean you have to travel along a slightly different route than initially planned.
"In cases where contracts have not yet been exchanged, buyer and seller should try and agree delay clauses to allow for Covid-19 provisions to protect them both.
"You may encounter other blockers along the way towards exchange as a result of local authority closures, search provider delays and getting physical signature and witnessing of documents, due to social distancing and travel restriction guidelines.
"Some of these problems (especially with searches) can be overcome by specialist insurance. Others (such as signature) may need alternative arrangements to be agreed between the buyer and seller.
"If a buyer is between exchange and completion, all parties are still legally bound to proceed to avoid being in breach of contract and having financial penalties imposed.
"Where possible, completions should be delayed in accordance with the UK government guidelines to 'stay indoors' but, for some, completion may be unavoidable. Matters are likely to become more complicated where there is a chain and there are more parties to juggle.
"Lawyers throughout the country are working together in drafting solutions to help the market keep moving and this includes the certainty of exchanges taking place whilst keeping the flexibility to ensure no one is forced to complete against their will.
"Buyers and sellers should stay in regular contact with all parties involved."
What if I want to buy a new home?
If you want to buy a new home, there are still plenty of things you can do to kick-start your search while in lockdown.
You can use the time to browse homes online that estate agents already have on their books, to give you a sense of what is out there, while many properties also have virtual tours you can take.
You can also do research on the areas you're interested in. For example, our site offers a number of tools enabling you to check out the local area, even journey times if you'll be commuting.
Check out mortgage lenders websites too, to get a sense of how much you may be able to borrow, giving you an idea of the price range for your new home.
Estate agents are still working, so even though you can’t visit them in their offices, it is still worth ringing them for a chat about the type of property you're looking for, as they may have someone waiting to list as soon as the restrictions are listed.
If you do find a property that seems perfect, you can put in an offer for it, although as explained above, the conveyancing process is likely to be slower than usual.
What can I do to get my home ready to sell?
One of the key things to do when preparing your home for sale is to have a good tidy up.
Rooms that contain a lot of clutter generally look smaller and darker than ones that are tidy and have clear surfaces, and this can put off potential buyers.
So, spend some of your time while in lockdown going through each room, having a good clear-out and packing away some of the ornaments and personal effects on display.
Also think about whether there is any furniture you could remove from rooms and store in the loft or garage to help make the space look bigger or more appealing.
Can I carry out home improvements during lockdown?
Many DIY stores remain open, although some are asking customers to order what they need online and then pick up their purchases at the store while still complying with the two-metre social distancing guidelines.
As a result, there is nothing stopping you from cracking on with those small DIY jobs you may have been putting off for a while.
Touching up paintwork or regrouting tiles can have a big impact on the overall look of your home.
Bear in mind that you cannot employ professional decorators and builders in your home during lockdown when you are living there, so a it's a great time to try your hand at DIY.
So-called kerb appeal is incredibly important when trying to sell your home, as the outside is the first thing potential buyers will see.
Under the current circumstances some potential buyers may drive by and have a look at your property before they are able to view the inside, and first impressions count.
As a result, put some effort into sprucing up the outside of your home. Whether this involves repainting the front door or tidying up the garden, it is likely to be time well spent.
Homeowners opt to unlock equity when remortgaging
People taking out a new mortgage increased their loan by an average of more than £50,000.
Thousands of homeowners tapped into their housing equity in December, unlocking an average of £50,702 each.
A total of 16,820 people who remortgaged during the month increased their borrowing, nearly 6% more than in the same month of the previous year, according to UK Finance.
More than half of people remortgaging in December opted to take on more debt, marking the seventh month in 2019 in which those unlocking equity outnumbered those who did not.
But there was no sign that homeowners were overstretching themselves, with the average loan-to-value ratio of people remortgaging increasing only slightly to 58.8%.
Why is this happening?
On the one hand, the number of people unlocking equity suggests homeowners are feeling confident about the outlook for the property market and are not concerned that house prices may fall in the near future.
At the same time, it is also likely to reflect a growing trend for existing homeowners to use equity in their property to fund extensions or other home improvements as an alternative to buying a new home and incurring all the move costs, including stamp duty.
Finally, the high levels of competition in the mortgage market, particularly during the final quarter of the year when banks and building societies are looking to meet their end of year lending targets, is likely to have tempted homeowners to take on more borrowing.
Who does it affect?
The fact that people feel optimistic about the property market is good news, as it suggests those who had been delaying making a purchase until the economic and political outlook was clearer will now go ahead with one.
But it is less positive that homeowners appear to be opting to stay put and improve their current property rather than trade up the housing ladder.
One of the factors that has been holding back transaction levels in recent years has been the shortage of homes for sale.
The property market needs existing homeowners to trade up the ladder and sell their current home to make properties available for those lower down.
What’s the background?
The UK Finance figures also showed a jump in people buying a home, as well as those remortgaging.
A total of 29,400 existing homemover mortgages were approved during the month, 3% more than a year earlier.
At the same time, mortgages were also advanced to 29,490 first-time buyers.
Top 3 takeaways
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Thousands of homeowners tapped into their housing equity in December, unlocking an average of £50,702 each
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A total of 16,820 people who remortgaged during the month increased their borrowing, nearly 6% more than in the same month of the previous year
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More than half of people remortgaging in December opted to take on more debt, marking the seventh month in 2019 in which those unlocking equity outnumbered those who did not
Buyers and sellers return to housing market
The pick-up seen after the General Election continued into January.
Confidence in the housing market continued to build in January with activity increasing for the second month in a row.
Estate agents recorded a rise in enquiries from potential buyers and new sellers listing their homes, while there was also an increase in the number of sales agreed. More estate agents are reporting an increase in property values for the first time since July 2018.
The rebound is expected to continue, with estate agents predicting an increase in sales in all areas of the country in both the near term and a year from now, according to the Royal Institution of Chartered Surveyors (RICS).
Simon Rubinsohn, RICS chief economist, said: "The latest survey results point to a continued improvement in market sentiment over the month, building on a noticeable pick-up in the immediate aftermath of the General Election."
Why is this happening?
The housing market has lacked direction for the past three and a half years, following the vote to leave the EU.
The political and economic uncertainty the referendum result created led potential buyers and sellers to adopt a ‘wait and see’ approach.
But December’s General Election, with Prime Minister Boris Johnson’s hard line on leaving the EU, backed by a significant majority in the House of Commons, brought some certainty to the market.
As a result, people who had previously sat on their hands for months are beginning to return to the market.
Who does it affect?
The increase in homes being put up for sale is good news for potential buyers, as the market has been dogged by a lack of stock, and therefore limited buyer choice, for the past few years.
But RICS cautioned that, despite the improvement, the average number of properties estate agents had on their books still remained very low at just 43 per branch.
This shortage of homes for sale is expected to put rising pressure on prices, with estate agents expecting property values to increase over both the coming three months and the next year; bad news for first-time buyers and those looking to trade up the property ladder.
What’s the background?
While the latest RICS survey offers good news for the housing market, it is less upbeat about the rental one.
Letting agents reported a fall in the number of new homes available to let for the 15th consecutive quarter.
At the same time, demand from potential tenants continued to increase.
The ongoing mismatch between supply and demand is expected to push rents higher, with letting agents predicting they will rise by just over 2% in the year ahead.
Top 3 takeaways
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Confidence in the housing market continued to build in January with activity increasing for the second month in a row
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Estate agents recorded a rise in inquiries from potential buyers and new sellers listing their homes, while there was also an increase in the number of sales agreed
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Estate agents predict an increase in sales in all areas of the country in both the next three months and a year from now
People aged 35-44 three times more likely to rent than 20 years ago
Home-ownership rates are falling among all age groups except those aged over 65.
The number of people in their mid-30s and 40s who rent their homes has soared three-fold in the past 20 years.
A third of those aged between 35 and 44 in England were living in the private rental sector in 2017, up from fewer than one in 10 in 1997, according to new figures from the Office for National Statistics.
By contrast, homeownership rates among people aged over 65 have increased, with nearly three-quarters of this age group owning a property outright, compared with 56% in 1993.
The ONS warned that homeownership was becoming increasingly concentrated among older people, with the proportion of people renting in the private sector increasing in all other age groups.
Why is this happening?
A combination of strong house price growth and stagnant earnings over the past decade has led to property affordability becoming increasingly stretched, making it harder for people to buy a home.
The ONS also pointed out that people aged over 65 were the first to benefit from the Right to Buy scheme, under which tenants were able to buy their council homes at a discount, boosting homeownership among this generation.
But many of the properties that were sold to tenants were not replaced, and while a third of people in Great Britain lived in social housing in 1979, the proportion had fallen to just 17.6% by 2017 – the lowest level since records began.
This drop in social housing availability has prevented younger generations from benefiting from the scheme to the same extent.
Who does it affect?
The ONS warned that if the current trend in homeownership continues, people are more likely to still be renting a home in the private sector when they retire than they are today.
It said research suggested someone who owned their home outright would need a pension pot of around £260,000 to maintain their standard of living in retirement, but someone who rented privately would need nearly double this amount at £445,000.
But it added that there were also benefits to renting in latter life, as the landlord would be responsible for maintenance costs.
What’s the background?
While the findings suggest many people are continuing to struggle to get onto the housing ladder, it is worth remembering that the data is from 2017, and the past two years have seen a significant increase in first-time buyers.
The number of people buying their first home soared to a 12-year high in 2019, with more than 350,000 people getting onto the property ladder during the year.
First-time buyers have benefitted from a raft of government initiatives in recent years, including the Help to Buy equity loan, the Help to Buy ISA and stamp duty relief on the first £300,000 of a property’s value, while plans for a new scheme offering local first-time buyers a 30% discount on new homes was recently announced.
These measures have not only helped to increase the number of people buying their first home, but this group accounted for more than half of all property purchases made with a mortgage in 2019.
Top 3 takeaways
- The number of people in their mid-30s and 40s who rent their home has soared three-fold in the past 20 years
- Homeownership rates among people aged over 65 have increased, with nearly three-quarters of this age group owning a property outright, compared with 56% in 1993
- The proportion of people renting in the private sector has risen for all age groups except those aged over 65 in the past 20 years
New-build numbers increase but fail to keep pace with housing demand
Home-building levels have risen by more than 80% in the past 10 years but by just 1% between 2018 and 2019.
The number of new homes being built each year has soared by more than 80% during the past decade, but continues to fall short of Government targets.
A total of 1.4 million new homes were registered between 2010 and 2019, according to the National House-Building Council (NHBC), which provides warranties on new-build homes.
In 2019, 161,022 properties were registered with the group, the highest level since 2007 and 81% more than than a decade ago.
But between 2018 and 2019 the number of new homes being built edged ahead by just 1%, while figures continue to be significantly below the estimated 240,000 to 340,000 new homes needed each year to keep pace with demand.
At the same time, all of 2019’s increase was seen in the affordable homes sector, which registered a 13% year-on-year rise, while registrations for properties in the private sector actually fell by 3%.
Why is this happening?
The Government has put a range of measures in place to help boost building numbers after the industry was hit hard during the financial crisis.
Initiatives including streamlining the planning permission procedure, creating an infrastructure fund to support new developments and introducing new sources of funding for small and medium-sized construction firms.
The sector has also benefitted from the Help to Buy equity loan scheme, which enables people to buy a property with just a 5% deposit, as it only applies to new-build properties.
But the industry continues to be dogged by issues, including a shortage of building materials and skilled workers, as well as a lack of suitable sites for homes.
Who does it affect?
London saw the biggest increase in new homes being built in 2019, with registrations in the capital soaring by 37%.
There was a rise in both affordable homes, which were up 42% year-on-year, and private sector properties, which jumped by 33%.
Strong gains were also recorded in the West Midlands, where new-build registrations rose by 17% and Eastern England, which saw an 8% rise.
But the number of new homes being built fell in all other regions of the country apart from Scotland, where levels were broadly unchanged.
The fall in registrations was biggest in Yorkshire and Humberside and Wales, which both saw a 12% drop, while figures were 11% lower in the South West.
Across the UK as a whole, the mix of homes being built was split broadly evenly between detached properties, apartments and semi-detached homes at 29%, 29% and 27% respectively.
This continues the trend seen since 2016, when developers started to prioritise building larger homes over apartments.
What’s the background?
The NHBC also recorded a strong increase in the construction of properties in the so-called build-to-rent sector.
These properties are high quality, professionally managed homes that are built specifically for renters and have corporate landlords and longer tenancies, as well as typically offering a range of extra facilities like in-house gyms.
Registrations for build-to-rent homes soared by 57% during the year to stand at 4,788, 281% more than when the group first began to keep data on the sector in 2015.
Build-to-rent has benefitted from government policy changes, such as the revised National Planning Policy Framework, under which local authorities have been asked to identify how many new rental homes their area needs to help them plan for rising demand.
It has also been helped by Permitted Development Rights, which enable certain buildings, such as offices or factories, to be converted in residential properties without the need for planning permission.
Top 3 takeaways
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The number of homes being built each year has soared by more than 80% during the past decade
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A total of 1.4 million new homes were registered between 2010 and 2019, with 161,022 homes registered in 2019
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But figures continue to be significantly below the estimated 240,000 to 340,000 new homes needed each year to keep pace with demand
First-time buyers save £1 billion through stamp duty exemption
New figures show how stamp duty relief has helped first-time buyers get onto the property ladder.
First-time buyers have saved more than £1 billion collectively since the government first launched stamp duty relief for those getting onto the property ladder.
A total of 464,700 transactions have been exempt from the tax since it was introduced in November 2017, saving buyers in England and Northern Ireland £1.11 billion.
First-time buyer relief was claimed on more than one in five transactions during the final quarter of the year, saving purchasers £154 million – the highest quarterly total since the tax break was first introduced, according to the Office for National Statistics.
But the level of revenue raised through the 3% surcharge for people buying a second home or investment property fell by 3% during the same period, as buy-to-let landlords continued to be cautious about expanding their portfolios.
Why is this happening?
The government introduced the first-time buyer relief on stamp duty in 2017 to help more people get onto the property ladder.
The move means buyers who have never previously owned a property and plan to live in the home they are buying do not pay stamp duty on the first £300,000 of their home’s price.
On house sales valued at up to £500,000, they pay the tax at 5% on the portion of the price between £300,000 and £500,000.
Who does it affect?
Stamp duty relief for first-time buyers has been credited with helping more people get on to the property ladder, alongside other government schemes such as the Help to Buy equity loan and Help to Buy ISA.
By contrast, the 3% surcharge for those buying an investment property, combined with a number of other tax changes, has been blamed for a fall in the number of landlords entering the private rental sector.
The drop in investors buying property has also helped first-time buyers, as the two groups typically chase the same homes at the bottom of the housing ladder.
What’s the background?
Total revenue from stamp duty on residential purchases was slightly down year-on-year reflecting the subdued level of home sales in the property market in 2019.
A total of 752,600 residential transactions were liable for stamp duty in 2019, 3% fewer than in 2018, while receipts were also 3% lower at £8.28 billion.
Within this total there was a slight increase in the number of homebuyers who were liable for stamp duty at a higher rate.
The number of homes bought for between £125,000 and £250,000, which are liable for stamp duty at the 2% rate, fell by 3% during the fourth quarter compared with the same period of the previous year.
At the same time, there was a 5% rise in transactions valued at more than £500,000, on which stamp duty is charged at 5% on the portion of the transaction over £250,000, and as much as 12% on the portion above £1.5 million.
Top 3 takeaways
- First-time buyers have collectively saved more than £1 billion since the government first launched stamp duty relief for those getting on to the property ladder
- More than one in five transactions during the final quarter of the year claimed first-time buyer relief, saving home buyers £154 million – the highest quarterly total since the tax break was first introduced
- The level of revenue raised through the 3% surcharge for people buying a second home or investment property fell by 3% during the final three months of 2019, compared with the same period of 2018
What's happening in the housing market in 2020?
latest State of the Property Nation report reveals what buyers, sellers and estate agents expect to happen to house prices in 2020.
Over a third of buyers actively searching for homes are looking to move within the next year - up 8% since 2017. But sellers are still cautious about putting their homes up for sale, with 31% worried they won't get their asking price.
Buyers become more confident while sellers still wary
While finding properties within budget and in the right location continues to be a challenge for buyers, the good news is there's been a 5% fall in the number of frustrated home-hunters in the past 12 months.
Finding the right location is less of a challenge for first-time buyers. Their main obstacle to becoming a homeowner is affordability: 50% perceive saving for a deposit as a challenge while 43% are concerned about securing a mortgage. But in reality, first-timers make up the largest buying group outside London and the South East, with 40% market share.
More space is the main motivation for moving home
‘Moving to a bigger home’ is the prime motivation for buying a new home, particularly among young families with 39% eager to upsize in the same area.
But over a third, or 36%, of empty-nesters are keen to 'move to a new location', often with the intention of moving closer to family.
Confidence is slowly returning to the housing market
There's been a modest increase in the number of people actively looking to buy, sell or rent a property. Of these active property seekers, 32% say they are more serious about moving than ever before -
Meanwhile, first-time buyers remain the largest buyer demographic outside of London and the South East, with a 40% market share.
Andy Marshall, Chief Commercial Officer at Zoopla, said: "With the property market, it’s easy to focus on the hard data like the number of sales, but it’s also important to scratch under the surface to understand what is motivating people to make a move.
"We are seeing a polarisation of the market. Confidence is slowly returning among buyers, but this is moderated by a feeling of caution among sellers, with ongoing economic uncertainty causing them to doubt whether they will achieve the asking price they believe their property is worth.
"The good news is that increasing numbers of people are active in the property market and that those seeking a new property are serious about making a move."
Mortgage approvals hit highest level in four years
The latest mortgage lending figures show a welcome pick-up in the housing market.
The number of mortgages approved for people buying a home soared by 20% in December to hit a four-year high.
A total of 46,815 loans for home purchases were agreed during the month. This was the highest level since August 2015 on a seasonally adjusted basis, according to UK Finance, the banking and financial industry body.
There was also a strong rise in homeowners switching to a new mortgage deal, with approvals for remortgaging jumping by 25% year-on-year to 33,738.
But there is evidence buyers were already returning even before the election, with mortgage advances in December reaching their highest level since March 2016.
There is typically a two to three month lag between when a mortgage is approved and when the money is advanced.
Why is this happening?
The housing market has been in ‘wait and see’ mode since the UK voted to leave the EU in 2016. But the large majority won by the Conservative Party at the General Election has increased the certainty that Brexit will happen according to the current timetable. This has made people feel more confident about going ahead with a big purchase.
Even before the General Election, estate agents were talking about seeing pent-up demand for homes, with people who had delayed making a decision beginning to return to the market.
Who does it affect?
The rise in activity in the housing market is good news for potential buyers and sellers alike.
Sellers will benefit from the rise in demand as it should enable them to sell their home quicker and achieve an offer that is closer to their asking price.
Increased demand is also likely to benefit buyers, as it should encourage more people to put their home on the market, increasing the amount of choice they have.
What’s the background?
Mortgage advances for the whole of 2019 were £265.8 billion – 1.1% less than in 2018, according to UK Finance.
Alongside Brexit uncertainty causing many people to delay house purchases, stretched affordability in many regions and a shortage of homes for sale have acted as a drag on home-buying levels.
But the property market has remained more buoyant in areas of the country where house prices have remained more affordable, such as the north of England and parts of the Midlands.
House price to earnings link lost in London but strong in other regions
Wondering what drives property values? We take a look at how earnings growth impacts house price rises.
The link between house price growth and earnings in London has become “almost entirely dislocated”, although it remains strong in other regions.
House prices typically rise broadly in line with increases in earnings, with higher wages typically pushing property values up as people can afford to borrow more through a mortgage.
But in London, this link has been broken, with pay growth and house prices often moving in opposite directions, according to estate agent Savills.
Research by the group found that property values in the capital fell by 2% in the two years to September 2019, despite earnings increasing by 7%.
By contrast, while average earnings rose by just 1% in London in 2015, house prices soared by 11%.
The study found that the link between rises in earnings and increases in property values remained strong in other regions, particularly the North West, Yorkshire and the Humber and Wales, with the ratio of house price to earnings remaining in a narrow range of 7.6 times to 8.1 times during the past five years, showing performance was based on what people could afford to borrow.
Lawrence Bowles, residential research analyst at Savills, said: “Our analysis shows that housing affordability in London is far more stretched than in any other region.”
Why is this happening?
While property in regional markets is typically bought by local buyers, overseas investors account for a significant proportion of transactions in London.
As a result, the market is influenced by other factors alongside earnings, such as exchange rates and the global economy.
The London market has also been impacted more than regional markets by stamp duty changes, including an increase in the top rate at which the tax is paid, and the introduction of the 3% stamp duty surcharge for people purchasing a second property.
These factors have diluted the impact earnings growth has on the market.
Who does it affect?
The disconnect between house prices and earnings in London is bad news for people wanting to buy a home there.The fact that earnings growth has only a limited impact on property values has led to affordability becoming increasingly stretched.
Despite this, demand from overseas investors, who typically have deeper pockets, could continue to push London prices higher.
By contrast, in other markets across the UK, house prices tend to stagnate once property becomes unaffordable while earnings catch up.
What’s the background?
Despite the disconnect between London house prices and earnings growth, Savills predicts the market will remain subdued until affordability improves, predicting price rises of just 4% in the capital in the coming five years.
Across the whole of the UK, Savills thinks prices will rise broadly in line with average earnings growth, increasing by just over 15% between now and the end of 2024.