England's Housing Market Cools
England’s housing market was on fire in 2020, rising to six-year highs by the end of the year, but this trend is expected to cool rapidly in the coming months with popular tax breaks ending and unemployment, spurred on by the COVID-19 pandemic, rising.
Various lenders and the Treasury’s Office for Budget Responsibility hold bearish outlooks, expecting housing prices to fall between 2-8% in 2021; whereas some forecasters hold more bullish outlooks, suggesting the market may actually rise 1-4% or that prices may, in worst case, remain flat. In any case, these outlooks signal a clear slowdown in the UK housing market for 2021. So why is this happening?
End of the UK stamp duty holiday
The stamp duty land tax (SDLT) breaks that began last June are due to expire on March 31, 2021. These tax cuts saved home buyers thousands of pounds on the purchase of new homes, incentivising a rush into real estate. Richard Donnell of the listings website, Zoopla, explained, “Once the SDLT holiday concludes at the end of March, we anticipate a slowdown in sales completions as the impetus to move among buyers motivated by stamp duty savings dissipates.”
The ongoing effects of the pandemic are also expected to weigh heavily on the housing market, with homebuyer preferences changing in light of rising unemployment rates. Buyers had been moving out of London and into less-densly populated areas such as Brighton, Southampton and Oxford, resulting in an 8% price increase in the outer south-east region. That said, prices in the London metro area are expected to drop markedly in 2021. “We forecast that after an exceptional year of growth in 2020, prices growth across the UK will slow to a mere 1.5%. Greater London prices have risen less but are likely to fall more, and we expect them to drop by 2% by the end of the year,”said Nick Barnes, head of research at Chestertons in London.
So where might investors find opportunity in 2021? Income inequality across generations will remain the long-term issue for the housing market. More specifically, the extent to which the younger generation and low-income individuals can gain access to affordable housing will determine how robust the housing market will be in coming years. That said, COVID’s impact on the economy will therefore increase the need for governments and developers to find ways to make more housing available and more affordable.
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