As the government relaxes lockdown restrictions, seasonal patterns will become more recognisable in the UK housing market and the balance between supply and demand will stabilise. However, two key questions remain unanswered.
As lockdown restrictions are lifted, there will be two significant effects on the UK housing market.
First, a greater degree of seasonality will return.
This will depend on rules surrounding summer holidays but a lull in activity over July and August should be more discernible than last year.
If the property market pauses for breath over the summer, current demand indicators suggest the autumn market will be robust compared to recent years. This will also depend on the success of the vaccination programme, including the ability to cope with new variants, but upwards pressure on prices is conceivable in the final four months of the year.
Either way, with the stamp duty holiday and the furlough scheme ended, September will provide the first indication of how strong demand is on the other side of the pandemic.
The second effect of lifting restrictions will be to stabilise the balance between supply and demand.
As we analysed recently, demand is currently growing faster than supply, which in large part is due to the closure of schools. Home-schooling means it’s far easier to register as a buyer than it is to open your home to viewings.
While new demand is up by a fifth since the start of the year, new supply is down by a third.
This imbalance is likely to correct next month when schools re-open. As more seasonality returns, owners who are not home-schooling may also decide to list in the spring. Any increase in supply will put downwards pressure on prices in Q2.
While these are two likely effects of lifting restrictions, tax and international travel are two major unknown considerations.
A stamp duty holiday that ends on 31 March has reduced any sense of seasonality further in recent months, as patterns of behaviour are shaped by the tax year rather than the calendar year.
We will have more thoughts on the Budget next week, but the Chancellor may wish to extend the holiday to be consistent with other support measures.
Stronger economic data and falling Covid cases mean there is little economic incentive for an extension, as we previously discussed.
Whenever the holiday ends, there will be a lull in activity before a return to normality. If there is no extension, this will simply happen sooner.
An extension would be inherently fair because it addresses the fact parts of the conveyancing system have become overwhelmed, which has jeopardised completion dates. However, there will come a point when the holiday overstays its welcome. The return of seasonality and the stabilisation of supply and demand will be made harder by an ever-shifting tax landscape.
The other unknown factors in the Budget are capital gains tax and a wealth tax, which we will discuss in more detail next week.
The final piece of the puzzle as restrictions are relaxed is international travel, which will have a more pronounced effect on prime markets.
As the UK vaccinates more of its population, the government will be keen to protect its gains and keep restrictions tight for particular countries.
Anticipating where demand will come from could mean studying the international vaccination league tables.
The irony is that the success of the UK’s vaccination programme means it has become a more attractive place to live, work and study for international buyers and tenants.
The longer travel restrictions remain in place, the more pent-up demand will build. As we have previously discussed, this may mean the extra 2% stamp duty surcharge for overseas buyers from April only puts a minimal dent in demand.
While restrictions will keep downwards pressure on prices and rental values, particularly in prime central London, a subsequent wave of demand will apply upwards pressure in a way that won’t happen in other UK property markets. Any boost from the lifting of lockdown will therefore be delayed in prime central London.
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