Bubble Burst: Is the UK Housing Market Set for a Mammoth Downturn?

House PurchaseWith the UK government’s stamp duty holiday at an end, the housing sector has already started to feel the pinch.

The property selling network Zoopla has confirmed that new listings on their site have slowed to a crawl, with the industry now facing the worst ‘shortage’ of sellable stock since 2015.

Since August 2020, new listings on the portal have fallen by 26% – the worst rate since the last property squeeze in 2015. And the total number of listings is down 33% compared to 2019 figures – despite a staggering 1-in-20 homes changing hands in the past calendar year.

That was a natural side effect of the Covid pandemic, with the stamp duty holiday in effect delaying the slowing of the housing market, rather than eliminating it altogether. And now everyone in the business – from estate agents and sellers trying to move on to buyers seeking a new property right for their needs – is starting to suffer.

According to Zoopla, the stock of family homes – i.e. those with three or more bedrooms – has been the worst hit, and the scarcity could see prices remain at the highs they have reached during the past year….despite buyers now having to fork out more to complete a purchase.

“The narrowing in choice of homes to buy, especially for family houses, means the market will start to slow naturally during the rest of the year and into next, as buyers wait for more stock to become available,” their report reads.

“While we anticipate a strong start to 2022 in line with seasonal trends, there will be a slow reparation of stock throughout the first half of the year.”

And maybe it’s not all doom and gloom. The average UK property sale now takes just 26 days – from first listing to an agreed sale. That is down from the 49-day average of 2019.

The Highs

House Prices Increasing

It was as recently as June that UK property prices hit all-time highs.

The average property at that point was worth £230,000 – the highest it’s ever been, and far exceeding the previous 2007 peak.

High demand and diminishing supply are the main contributory factors, with price growth up 5.4% in June year-on-year just as the stamp duty holiday was ending. Demand was up 80% compared to June 2020, with completed sales also seeing a 22% increase.

Demand for houses has increased as the appetite for flats has stalled, while the areas of the UK enjoying the highest growth in property prices are Northern Ireland (8.6%) and Wales (8.4%). In England, house prices have boomed the most in the North West (7.3%) and the Yorkshire & Humber region (6.8%).

There is a clear discrepancy in growth in ‘outer’ and ‘inner’ London. Demand for properties in the suburbs and Greater London has increased by a staggering 86% since the start of the pandemic, with demand in inner city areas around the average expected.

But the demand has only been partly matched by price increases in the capital. Annual growth in London is down at 2.3%, although that has been hampered by the fall in demand for flats – they have actually seen a decrease in their annual value.

However, the feeling is that if there are no further setbacks and lockdowns, prices in inner London will increase at a faster rate than anywhere else in the land in 2022 and beyond.

The Lows

House Prices Decreasing

From July into August, and now the picture looks a lot bleaker.

This month alone, the average UK property price has fallen 0.3%. That might not sound much, but it equates to around £1,000 – and the downward trend is expected to continue for the rest of 2021.

The stamp duty holiday has ended, and so now buyers – as of September – will have to pay tax on any property purchases over £125,000. First time buyers are exempt from the duty for homes up to £300,000, which is another change from the June highs.

During the stamp duty holiday, sellers were able to increase their prices given that buyers had a bit more cash in their pockets. However, now it has been reported that the average asking price for homes with four bedrooms or more has fallen by nearly £5,000 in August, in recognition of the tax.

But demand for smaller properties remains buoyant, as identified by Rightmove’s Tim Bannister.

“Average prices have only fallen in the upper-end sector, which is usually more affected by seasonal factors such as the summer holidays and has also seen the greatest withdrawal of stamp duty incentives.

“The mass market of properties that cater for first-time buyers and second steppers is still seeing high demand and upwards price pressure, leading to new record high average prices in those sectors.”