WHAT JUST HAPPENED?
Sellers are hiking their price tags to a record high for the fourth consecutive month despite the disappearance of stamp duty savings due to a drought of properties on the market. [1]
WHAT DOES THIS MEAN?
The absence of property listing in the market has caused a visible imbalance between supply and demand which has pushed up house price growth with the average asking price being 6.7% higher than 6 months ago, an increase of £21,389. In particular, the Northwest was the region with the highest annual house price growth, with average prices increasing by 15.2%.[2]
Consequently, the imbalance created between supply and demand means that homes are selling faster than expected.[3]
Rightmove’s, Tim Bannister states that the reason for such imbalance is due to the extended transaction tax holidays in England and Wales which has further exhausted the supply of homes as buyers rushed to bring forward moves to take advantage of the tax savings.[4] The first 500,000 pounds ($692,000) of any property purchase in England or Northern Ireland was exempt from stamp duty until the end of June. A 250,000-pound tax-free allowance remains until the end of September.[5]In layman's terms, since the house prices decreased during the pandemic, people working from home sought bigger properties and the government cut the purchase tax.[6] Now, there are not enough properties on sale in the market.
He further adds that after the lockdown was lifted, “this has left prospective purchasers with the lowest choice of homes for sale that we’ve ever recorded, continuing price rises, and stretched affordability.”[7] The Organization also stated that “With high activity levels continuing despite the June stamp duty deadline now passing, there is an urgent need for these low stocks of property for sale to be rebuilt in order for price stability to return.”[8]
The tapering of the tax incentives has not yet dampened demand. A desire for space and gardens in the wake of lockdown and the shift to homeworking was still a definitive driving factor but where such factors remain significantly influenced behind the purchase of property, such properties are either inactive in the market or are too expensive for first buyers to purchase.
HOW DOES THIS IMPACT THE LEGAL SECTOR?
The boom in the housing market helped to soften last year's 10% slump in the economy but has widened wealth inequalities between property owners and those without their own homes according to the research from the Resolution Foundation Think Thank.[9] With the rise in the volume of sales agreed and no significant increase in properties coming to the market, the lack of affordability, particularly in certain areas , due to the price hike is further exacerbated by the lack of housing stock on the market. This rise in house prices is making it more challenging for some first-time buyers to get on the property ladder. TwentyCi’s data even shows many first-time buyers are getting priced out of the south of England entirely.[10]
Whilst the hike in price tag has caused disruption to the economic structure of the UK residents, the amount of properties bought during the pandemic has benefited the other half of the UK’s property sector. The current bricks and mortar value of the UK’s private rental sector sit at almost £1.4 trillion, according to new research from a buy-to-let specialist, Sequre Property Investment. There are an estimated 5.5m privately rented homes across the UK, accounting for 19% of the entire property market. With the current average UK house price now at £254,624, this puts the PRS bricks and mortar value is as high as £1.4trn. England is home to by far the largest private rental market with 4.8m homes within the sector. This places the total value of the English rental market at £1.3trn based on the current average house price of £271,434.[11] As such, in the following months, law firms that specialise in litigation and conveyancing can expect work from clients regarding commercial and residential tenancy leasing agreements and disputes. This would act as a much-needed financial boost for some high street law firms that were significantly impacted by the lockdown, thus not being able to provide services to clients due to lack of resources in formulating an effective business continuity plan to remain in business during the lockdown.
Written by Amarjit Tark
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REFERENCES:
[1] Melissa Lawford, ‘Lack of Homes for Sale pushes asking prices to record high’ (The Guardian, dated 19th July 2021).
[2] Kevin Peachey, ‘North West England leads housing boom with prices up 15%’ (BBC News, Dated 14th July 2021)
[3] Melissa Lawford, ‘Lack of Homes for Sale pushes asking prices to record high’ (The Guardian, dated 19th July 2021).
[4] Melissa Lawford, ‘Lack of Homes for Sale pushes asking prices to record high’ (The Guardian, dated 19th July 2021).
[5] William Schomberg, editing by David Milliken, ‘UK house prices rise again amid record monthly sales – Rightmove’ (Reuters, Dated 19th July 2021)
[6] William Schomberg, editing by David Milliken, ‘UK house prices rise again amid record monthly sales – Rightmove’ (Reuters, Dated 19th July 2021)
[7] Melissa Lawford, ‘Lack of Homes for Sale pushes asking prices to record high’ (The Guardian, dated 19th July 2021).
[8] Hillary Osborne, ‘Frenzied buyer activity’ drives UK house prices to new high’ (The Guardian, dated 19th July 2021)
[9] David Milliken, Editing by Alex Richardson, ‘Coronavirus house price boom widens UK wealth gap’ (Reuters, Dated 12th July 2021)
[10] UK Housing Market, ‘How has UK property market’s strong performance impacted the sector’ (BuyAssociation, Dated July 2016, 2021)
[11] Rozi Jones, ‘Private rental market valued at £1.4trn in current market conditions’ (Property Reporter, Dated 19th July 2021)
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.