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Will house prices fall after the Stamp Duty holiday ends?

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The first Stamp Duty holiday deadline on 30 June 2021 has been and gone. Any conveyancing transactions must have completed by 30 June to receive a full tax break on properties worth up to £500,000 in England and Northern Ireland.

Until 30 September 2021, buyers will still be able to get a full tax break on purchases worth up to £250,000 (so will also enjoy reduced Stamp Duty for purchases worth more than that). However, the question on everyone’s mind is, will house prices drop now the first stage of the holiday has ended and the second deadline is fast approaching?

According to Halifax, one of the UK’s biggest mortgage lenders, average house prices rose by another 1.3% in May as buyers scrambled to complete. Halifax also reported that average prices dropped in June by 0.5% as people anticipated the deadline, but overall average prices are still around 8.8% higher than a year ago.

Rival lender Nationwide’s own data suggests average house prices are around 13.4% higher than a year ago.

Banks and other industry experts predict that house prices will continue to rise, and there are a number of reasons behind this, including:

Increase in household savings

Financial uncertainty and restrictions on going out during the Covid-19 pandemic meant that UK households accumulated over £125 billion more in savings over 2020 than they otherwise might have done.

With interest rates at a record low, most people are not seeing significant returns on their savings. In contrast, mortgages are relatively cheap. So, as coronavirus restrictions have ended and consumer confidence continues to improve, buyers may consider it a wiser financial decision to invest their savings in property rather than leaving their money to sit in a savings account.

Summer is peak house buying season

Summer is traditionally the most popular time of year to move house. Between 2007 and 2018, 12.8% of all owner-occupier home movers moved house in August alone.

Reasons for this include:

  • People often start thinking about making big life changes in the spring as the new year beckons fresh possibilities.
  • It is the summer holidays, which makes it a convenient time for parents with children to move.
  • It gives parents time to prepare their children for school in September, especially if they have to start a new school.
  • The weather is nicer, making moving easier and less hazardous.
  • The days are longer, giving home movers more time to get everything done.

2021 has the added bonus of the lifting of coronavirus lockdown restrictions. After months of being told to stay at home, people are itching to make life changes and take advantage of their new freedoms, so may be keener to move home.

Priorities have changed

With everyone stuck at home over 2020 and half of 2021, city centre living and flats have become less popular than they used to be. Increasing numbers of people are looking to move to the countryside or a home with a garden – a phenomenon the media have referred to as ‘urban flight’.

This is unlikely to be a temporary blip. It is said that millions of UK workers will continue working from home either part-time or full-time once Covid-19 restrictions have lifted. Once the commute is removed, people have the freedom to live wherever they want. As a result, it is expected that demand for homes will continue well beyond the end of the Stamp Duty holiday.

More support for first time buyers

First time buyers, who as a group have not benefitted from the Stamp Duty holiday, have been rather left behind during the height of the pandemic in 2020. However, the government is now focusing on supporting more first time buyers, including:

  • Introducing the new Mortgage Guarantee Scheme to encourage lenders to bring back low-deposit mortgages, meaning first time buyers do not need to save as much to get on the housing ladder.
  • Introducing the First Homes initiative – which could provide up to 10,000 discounted homes per year for buyers who could not otherwise afford to buy in their local area. (It remains to be seen whether the initiative will be a success or impact house prices).

The new Help to Buy: Equity Loan scheme also started in April 2021.

Such schemes, although useful at helping individual households buy their first home, are often criticised for boosting house prices across the market.

Do you need advice about moving home in 2021?

At Bird & Co, we are specialist firm of Law Society accredited conveyancing solicitors who help people across the UK buy and sell their homes.

We can handle all the legal aspects of your transaction on your behalf, making the process as simple, straightforward and stress-free as possible.

Get a conveyancing quote online to see how much your transaction is likely to cost, then a member of our conveyancing team will be in touch shortly.

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