What has happened?
Despite the UK entering the worst recession since records began,[1] Rightmove has reported over £37 billion worth of property sales agreed in July, making it the most active month for home buying since they started tracking this data over ten years ago.[2] The temporary stamp duty changes coupled with changing consumer preferences are just two of the factors that contributed to this occurring.[3]
What does this mean?
During a recession, businesses tend to be struggling which leads to reduced wages, increasing unemployment and governments either reducing the spending or increasing taxation. All of this normally leads to house prices falling (which was what occurred during the financial crisis in 2008).[4] However, currently, this doesn’t seem to be the case. In fact, the opposite seems to be happening. There is substantially more property coming onto the market than there was a year ago; in London alone, there is 69% more property entering the market compared to the previous year, and in the South East there has been a further 60%.[5] This rise is likely due to changing consumer preferences brought about by the lockdown, as more people have been working from home and the future of work is changing. People no longer want to commute five days a week or live in urban environments closer to offices. There has been an increase in demand for rural locations, larger living spaces and gardens. This has caused a rise in prices of the more popular countryside locations, in particular Devon and Cornwall.[6]
Sales agreed for July this year are up by 38% on 2019,[7] this shows that it is not just the supply side of the property market that is flourishing but there has also been a significant increase from the demand side. One contributing factor could be that fewer people are going abroad for holidays this year due to the coronavirus pandemic, so sales cycle is faster. Another prominent factor is the government’s recent stamp duty change, which means that buyers don’t pay stamp duty for the first £500,000 of a purchase, which could mean savings of up to £15,000.[8] This makes house buying more appealing. Mortgage products are still competitively priced due to good liquidity and low interest rates,[9] making it an ideal time to borrow. In addition, prices are not rising significantly as the increase in listings is helping to keep the market balanced and for the most part buyers are aware of the risks of overpaying in uncertain times[10].
How does this impact the legal industry?
The increased market activity will have brought more work for property lawyers, such as negotiating sales, purchases and leases of land and buildings and managing property portfolios.[11] Property practice is very closely linked to how the market is performing, typically in an economic downturn there is less demand for properties and new developments, values plunge and conventional bank lending becomes progressively harder to find, leading to less work for property lawyers. Equally, in good times the opposite is most likely true.
The property market is set to potentially be busy for a while longer due to the stamp duty cuts and possible further stimulus to the autumn Budget[12]. However, as the housing market is mainly influenced by wages and interest rates, problems are likely to occur if unemployment increases following the end of the furlough scheme. This could lead to mortgage repayments being questioned and people are less likely to be looking to buy a new home if they are recently out of a job. All these factors would lead to a decrease in property sales, which in turn would cause a decline in the work for property lawyers.
Written by Isabella Hunter
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References:
[1] Alex Finnis, ‘House prices in recession: What the UK economy means for the housing market and what’s happened in the past’ (I News, 2020).
[2] Ben Chapman, ‘How long can the UK’s post-lockdown housing market boom last?’ (Independent, 2020).
[3] ‘Housing market sees busiest month in ten years’ (Rightmove, 17 August 2020).
[4] Alex Finnis, ‘House prices in recession: What the UK economy means for the housing market and what’s happened in the past’ (I News, 2020).
[5] ‘UK housing market sees busiest month in ten years’ (Property Wire, 2020).
[6] ‘UK housing market sees busiest month in ten years’ (Property Wire, 2020).
[7] ‘Housing market sees busiest month in ten years’ (Rightmove, 17 August 2020).
[8] Eleanor Harvey, ‘UK housing market ripe for young property investors after stamp duty cut’ (Buy Association, 2020).
[9] Eleanor Harvey, ‘UK housing market ripe for young property investors after stamp duty cut’ (Buy Association, 2020).
[10] ‘UK housing market sees busiest month in ten years’ (Property Wire, 2020).
[11] ‘Property/real estate’ (Chambers Student, 2020).
[12] ‘UK housing market sees busiest month in ten years’ (Property Wire, 2020).
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.