Q&A: ‘We think the housing market is on track for its busiest year since the global financial crisis’

Q&A: ‘We think the housing market is on track for its busiest year since the global financial crisis’

Q&A: ‘We think the housing market is on track for its busiest year since the global financial crisis’

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Our head of research, Gráinne Gilmore, looks at what has triggered the recent boom in housing market activity – and what the outlook is as the stamp duty holiday ends.

Q. Gráinne, 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.

Graph showing annual house price growth highest in Wales and the north

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.

Graph illustrating that the highest price rises are found in the fastest-moving housing markets

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.

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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.