Market Insight: March 2021
The government originally announced a holiday on Stamp Duty Land Tax (“SDLT”) payments in July 2020 following the first national lockdown in a bid to boost the economy through the housing market.
This tax break was only due to be in operation until 31st March 2021, however a third national lockdown, which commenced on 4th January 2021, put additional strain on an already huge pipeline of sales, raising concerns about the potential negative impact of enforcing the original deadline.
As a result, the Chancellor has announced that the SDLT holiday on properties worth up to £500,000 is set to continue until the end of June. This will then be followed by another three months without stamp duty on properties worth up to £250,000, before it returns to the pre-pandemic threshold of £125,000.
A second incentive for the housing market in the 2021 budget comes in the form of guaranteed 95% mortgages on property worth up to £600,000. This will benefit those who can only afford a 5% deposit on their property who will have found acquiring these mortgages almost impossible to find since the pandemic began.
While the announcement of guaranteed 95% mortgages will be a huge boost for first time buyers, the scheme is still open to anyone who wishes to purchase a property with a 5% deposit.
When the first SDLT holiday was announced in July last year, the impact was instant across Wirral and Cheshire West areas as record levels of activity were experienced on the Rightmove platform for six consecutive months.
Volume of monthly new instructions to market across Wirral and Cheshire West (Rightmove, 2020-21)
However, when it became apparent that coming to market would likely mean missing out on the SDLT deadline of 31st March, the volume of new instructions that came to market in January and February decreased year-on-year; the first time this has happened since May 2020.
The slowdown in the market also coincided with a third national lockdown on January 4th, which is still ongoing as we edge towards a phased recovery. While the housing market was allowed to stay open, the volume of coronavirus cases nationally may have contributed to the lower levels of market activity.
These factors resulted in a combined 16.7% reduction in new instructions for January and February when compared with the same period in 2020. With the SDLT holiday set to end in March, the market needed an extension to the stamp duty holiday in order to provide an injection of new stock to market, while ensuring more current sales can exchange before the deadline.
Volume of monthly sales agreed across Wirral and Cheshire West (Rightmove, 2020-21)
While the number of new instructions has seen a decline so far this year, the volume of sales agreed has experienced a year-on-year increase for each of the past eight months since the SDLT holiday was announced.
What this essentially means is the volume of available stock continues to shrink as demand outweighs supply in the market. In fact, the number of sales agreed have exceeded the volume of new stock coming to market in each of the past four months across Wirral and Cheshire West.
Average property prices have already seen significant growth since July 2020 locally, and will continue to rise providing stock levels continue to fall.
Both announcements in the Chancellor’s 2021 budget are great news for the housing market both locally and nationally. Firstly, it will relieve the pressure on Estate Agents and solicitors to force through exchanges ahead of the March 31st deadline. It was looking likely that many sales would not be ready to exchange by the original deadline and could have resulted in huge chain collapses.
If the reaction in the market is similar to the first SDLT announcement, new instructions should start coming on in higher volumes than recent months. This will provide a much needed boost to market activity which should help increase the dwindling supply, and slow down the rate of rising asking prices.
Furthermore, the local property market has been dominated by those looking to take advantage of the tax savings at the higher end of the market in recent months, while first time buyers have struggled to acquire mortgages with low deposits (below 10%).
With the Government now offering guaranteed 95% mortgages to everyone, this is especially great news for first time buyers who can finally access the funds they need to purchase a property. This should provide more balance to the market with an increase in transactions at the lower price points.
Providing the stock levels start to increase as a result of the government incentives, we should see a thriving local property market in the months ahead.
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