How is the housing market progressing during Covid-19?

How is the housing market progressing during Covid-19?

Paul Williamson of Begbies Traynor shares his insights on the housing market during the Coronavirus pandemic, and what we can expect going forward.

As house hunters supercharge their search for new residential property, determined to take advantage of the reduced Stamp Duty Land Tax (SDLT) rates before 31 March 2021, first-time buyers experience unprecedented market competition from more experienced buyers looking to secure a quick sale.

The temporary stamp duty ruling is drawing custom to the housing market, reducing the likelihood of the sector falling into a trading slump.  Current stamp duty rules pose no SDLT on house purchases below £500,000, resulting in thousands of pounds worth of tax saving for homeowners.

Are house buyers well placed to purchase during Covid-19?

As the economy continues to ride uncertain waters, mortgage lenders withdraw high loan-to-value (LTV) products to the dismay of first-time buyers. According to the latest Zoopla House Price Index, the share of first-time buyers purchasing homes has dropped for the first time in five years. As demand from first time buyers is set to reduce further as we enter 2021, existing homeowners are likely to overtake this demographic for the first time since 2017.

As house prices mirror the release in pent-up demand, buyers flock following the reopening of the housing market, resulting in demand to soar at the fastest rate since 2016, according to Nationwide. As momentum around house sales continues following the shutdown of the market during peak lockdown and the SDLT reduction, the housing market is experiencing steady growth. On the other hand, FTBs with smaller deposits are forced to raise more funds before approaching the bank or put their housing plans on hold until lenders recover the confidence to reintroduce high LTV products. Job certainty and unexpected drops in income remain on the agenda for workforces, as once strong performing and viable businesses now battle the prospect of company liquidation.

As house prices continue to soar, leading mortgage lenders withdraw key products and unviable jobs face the threat of redundancy following the closure of the Coronavirus Job Retention Scheme (CJRS). Selected demographics and regions are benefitting more than the other from the rapidly changing nature of the housing market, however, the market has made great strides since the trading standstill in March 2020.

Supply chain delays and resource restrictions

As government guidance in response to Covid-19 allowed for the construction sector to continue operations during the lockdown, subject to social distancing measures, many construction workers decided to halt work until the easing of lockdown measures. Although the build of new housing continued at a slower pace, sales offices were forced to close their doors as all property viewings faced temporary suspension.

As each party in the chain continues to face hurdles, from the construction company to the homebuyer, homebuilders are forced to urgently review itineraries and expected completion dates.

Following unprecedented and irregular demand for raw materials, combined with supply chain delays due to the coronavirus pandemic, resources, equipment and building materials are harder to access.

To cope with the sudden uplift in demand, merchants and building materials supplier are applying a cap on essential items to spread availability evenly across customers.

Will the government target for new housing take a hit?

Local councils are calling for an urgent review to government spending and an overhaul of the national recovery process as the construction of affordable housing and social housing faces severe delays due to Covid-19 pressures.

The government pledge to build 300,000 houses per year is under threat as the number of new homes due to be constructed this year is estimated to reach just 66% of that achieved last year. To recover from the time lost during the Covid-19 lockdown, confidence needs to be renewed in the market for new sites to reach completion.

Leading property developers, Savills, forecast that following a medical advancement this year, completion would experience just a 30% drop in 2020 before recovering to pre-covid levels in 2021-2022.  If the economy takes until 2023 to recover to pre-covid levels, delivery this year could be 50% of 2019-20 levels, taking until 2023-24 to recover to last year’s levels based on greater reliance on the Build to Rent initiative and grant-funded affordable housing sectors.

As the construction of new housing faces supply chain delays due to coronavirus restrictions, social distancing measures and a shortfall of resources, the market is operating at a slower rate than usual, however, consumer demand remains at unprecedented levels. Trading uncertainty continues to impact the housing and property sector; however, the route forward will be dictated by the spread of Covid-19 and the development of a vaccine.

Paul Williamson is Managing Director at Selling My Business, a leading business transfer agent founded in 1956, and part of Begbies Traynor Group.

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