We’ve had the biggest collapse in GDP since the 18^th century, thanks to a global pandemic, but yet the housing market is looking stronger than ever! At least according to reports from online estate agents.

Rightmove’s latest House Price Index shows that the average price of property in July hit a record high – 2.4% (£7560) higher than it was in March, pre-lockdown! The annual rate increase of 3.7% is the highest it has been since December 2016.

Rightmove is coining this increase as a “mini-boom” and shows that buyer enquiries are up 75% compared to last year and monthly agreed sales are up 15% too. There’s a clear correlation between the announcement of the Stamp Duty relief and the increased sales, as just days after the announcement, the number of sales was 35% more than the same time last year.

Not everyone predicts a mini-boom in the property market

Rightmove’s data has taken other property market analysts by surprise. The Office for Budget Responsibility predicts an 8% drop in house prices and a general collapse in transactions this year. The big mortgage lenders have said that they’ve been preparing for falls of up to 15%. House purchases in June were still down by about 30% in 2019, when numbers were already low due to an uncertainty in the market because of Brexit.

So why is there such a recent surge in buyer interest? Brexit did make many buyers uncertain, but after seeing no negative effects on the property market, many started to enquire again. With the market shut down for 8 weeks due to coronavirus, this recent buyer activity could simply be a backlog of demand from a post-Brexit and post-lockdown demand.

Are the government helping the housing market?

Increased house sales could really help the economy, not just within property, but in the wider economic picture too. Housing moves lead to people hiring contractors, such as removal companies, builders, handymen and interior designers. Plus, several thousands of pounds often go into kitting out a new home with white goods and new furniture. It’s within the government’s best interest to want the housing market to continue its mini-boom.

On July 8^th, Rishi Sunak, the chancellor, made an announcement to raise the threshold for paying stamp duty. House buyers would now only need to pay stamp duty above £500,000 – a significantly higher amount than the previous £125,000. This holiday in now place until March 2021 and hopes to increase house sales as it did in 2008.

However, with the furlough scheme coming to an end in October, it’s likely that unemployment rates will spike and many lenders are predicting that this will cause house prices to drop. As a result, banks have significantly tightened mortgage criteria – Moneyfacts report that the number of mortgages available with a 60%-80% LTV (loan-to-value) ratio has collapsed since March.

First-time buyers will struggle in this property market

High loan-to-value mortgages are often what first-time buyers rely on, so with lenders being more reluctant now, it’s put a lot of pressure on first-time buyers. Nationwide is one of the country’s largest lenders and they just announced on the 16^th July that they would be bringing back their 90% LTV ratio loans. However, they are now subject to “enhanced lending criteria.” What this means is that you now require a much higher income and a better credit rating in order to get one of these loans.

For example, a couple looking to buy their first house would hope to do so for around £220,000 – the average price for first-time buyers according to Zoopla. However, they will now need to have a deposit of about 15-20% of the property compared to the 10% required before the crisis, which means a significantly higher amount of savings. Furthermore, the stamp duty holiday that’s causing the surge in property buying is no benefit to first-time buyers as they already didn’t have to pay tax on properties sold for up to £300,000.

Future predictions for the property market?

Housing market analysts are not optimistic about the LTV loans being widely available to as many people as they were before. With this new constrained mortgage availability, it will naturally slow the market overall.

With the government’s furlough scheme set to end in about 3 months, the likely rise in unemployment, a possible no-deal Brexit and the end of the stamp duty holiday in March all point to a dreary 2021 for the housing market. So far, it appears to be one of the only things immune to COVID-19, but it’s unlikely to stay that way for too much longer.