What will happen to house prices once the stamp duty holiday ends?

More people are wondering what the end of the 2021 stamp duty holiday will mean for UK property. I was recently asked to provide my opinions on a series of questions posed by a property market journalist.  Their questions and my views are summarised below:

Will house prices fall, or will they experience a hike?

When a stamp duty holiday ends, there is always a slowing down of demand. If demand falls, house prices usually follow. There has been a recent hike in prices with buyers looking to take advantage of the stamp duty holiday. Unfortunately, with many predictions of housing price deflation this year, any savings made during the latest stamp duty holiday may well be lost if house prices do indeed fall.

What will happen to the housing market as a result?

Artificial stimulants such as a stamp duty holiday can only prop the market up for a limited period. The property market is built on certain fundamentals one of which is the level of income growth in a strong economy. With the Furlough scheme set to end, we may be in for a time of rising unemployment and reduced incomes as certain firms continue to struggle in these uncertain covid times. Rising unemployment has a negative influence on the housing market and could lead to significant falls in house prices in the more adversely affected parts of the UK.  In London, house prices could also fall if overseas buyers continue to stay away due to covid restrictions and quarantine requirements.

When is the best time to buy? Pre or post stamp duty holiday?

The best time to buy is generally not when demand is artificially high due for example a stamp duty holiday. We have acquired some of our best properties during property market downturns. When house prices are static and confidence from sellers is lower, you are always able to negotiate a better deal but you need to be confident to go against the grain.  The trick is finding a suitable property to buy when there are less sellers in the market.  In times where the property market is attracting negative publicity, sellers are more reluctant to list their properties for sale unless they are forced to by the threat of unemployment, and the three D’s of death, divorce and debt.  So whilst it can be much harder to find good properties during property market downturns, the rewards for persistence and bravery can be substantial.

How can first home buyers best prepare for this?

First home buyers can be best prepared for this by not getting caught up in the hype surrounding busier markets in stamp duty holiday periods. Take your time over a property search and be sure you are being completely objective when you do have a new home in your sights. Once you have committed, the penalties for getting it wrong can take years to iron out.   There are many options available to first-time buyers enabling them to work with an experienced buying agency to ensure they are paying a fair price and giving themselves the best chance for the property in question to increase in value during their period of ownership.

In Summary, savings from a stamp duty holiday can seem well worth taking advantage of if you’ve been thinking of getting into the property market but you need to tread carefully.   Property prices can be artificially stimulated by an increase in short term demand that a stamp duty holiday can generate.  Any gains made at the point of purchase can very easily be lost if the market slips back to pre stamp duty holiday levels and you can find yourself very quickly in a negative equity situation.

This is particularly important in 2021 where the property market across the UK is threatened on several fronts.

Nobody yet knows how our economy will fare in the short term post brexit. Government financial support for the economy can only go on for so long and will have to be paid back at some stage in the future.  The end of the Furlough scheme may lead to rising unemployment and Boris may have to raise taxes to get the UK back on its feet post-Covid.

We believe that the property market in prime London will be bolstered once travel restrictions are lifted and overseas buyers return. Indeed, many property market forecasters are predicting a surge in prices once the vaccination programme has truly taken hold enabling Boris to open up the economy and to release UK businesses from present lockdown restrictions.  In the meantime, it is as important as ever to exercise sound judgement before committing to any major property buying decision.

So if you have a property in your sights in 2021 and you would like to have the benefit of a qualified second opinion before committing, please get in touch.