What you need to know about property as we continue to navigate Covid-19

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When lockdown was announced in March, the property market ground to a halt.

Millions of transactions were put on pause, leaving people stuck mid-move and unsure of what would happen next. As the economy stuttered, mortgage and rental holidays were offered. And as weeks turned into months under lockdown rules, many have started to consider how the location they live in impacts their lifestyle, health, and wealth. It’s left many asking whether it’s time for a change.

Fortunately, the housing market is now very much open again and we’re finally able to start assessing our options and making moves. This is why now seems like a good time to talk about property and what we all need to know about the current state of property, whether we’re buyers, sellers or investors.

A market overview

From May 13th, the property market started to rumble back into motion after its Covid enforced slumber. Estate agents began doing viewings both online and in-person, removal firms were able to restart operations, and those who exchanged pre-Covid were finally able to complete.

However, with predictions suggesting that the next few months could see massive unemployment, wage cuts, business failures, and job uncertainty, it’s understandable that some may be sceptical about what that means for property.

After all, usually, the conditions of economic recession lead to falling house prices and a stalling market. And at the start of lockdown, this certainly threatened to prove true. Prices fell 1.7% in May according to Nationwide, the biggest monthly drop in price indexes for 11 years. Likewise, Zoopla recently released data that suggested that 124,000 house sales, worth a collective £27 billion, have been lost out on this year thanks to Covid.

Since restrictions started easing, however, there has been a sharp bounce back in the market. Foxtons recently announced that lettings are almost at pre-crisis levels and sales are well up from April and May. Moreover, Rightmove has described an ‘unexpected mini-boom’ in demand for property, which has seen enquiries up by 75% and helped push house prices up to record highs.

The fact is that there remains a lot of pent up desire to buy and sell thanks to the last few years of Brexit uncertainty. Many were choosing to wait until there was a firm decision on what Brexit would look like, with the UK seeing an initial surge (28%) in people house hunting online after the General Election. Now that the market is moving again, this appetite to buy and sell is only set to continue.

The Stamp Duty Holiday

A key measure that has been taken to support the housing market has been the “Stamp Duty Holiday” announced by Rishi Sunak in his July mini-Budget. This is being credited with the surge in activity being seen in the property sector, especially in London where new sales are up 27%.

Stamp Duty land tax (SDLT) is a lump sum payment anyone buying a property or piece of land over a certain price has to pay. Historically, the rate paid by a buyer in SDLT depends on the property’s value — with most buyers having to pay a percentage if their property is worth more than £125,000 (in England and Northern Ireland). The case is different again for first-time buyers paying no Stamp Duty on properties below £300,000 and having access to relief on properties of up to £500,000.

Sunak’s Stamp Duty holiday has changed some of these rules so that now all people trying to buy a property up to £500,000 will pay no SDLT if they buy in the next six months (to March 2021). There are also reductions in SDLT for the next portion of a property’s value, and both landlords and second-home buyers can benefit from the tax cuts. In other words, it’s good for property investors as well as those simply trying to upsize or change location.

The change could save buyers as much as £15,000 if they are buying a house of £500,000 or more and therefore may make a purchase feel tempting. It’s also worth noting that during the last holiday in 2008, evidence suggested that it also allowed sellers to keep their prices higher because they knew buyers weren’t paying as much in tax.

As Nick Green wrote for Unbiased, “Who ultimately benefits most may come down to the negotiating skills of individual buyers and sellers. Overall it is likely that the stamp duty savings will end up being split down the middle, with sellers managing to pocket half of the difference.”

A note for first-time buyers

For first-time buyers looking to get onto the property ladder, the current environment may look like a good opportunity — with both more homes coming to market and the added incentive of the Stamp Duty holiday.

But the market is not without its challenges — the most significant being around mortgages. Pre-crisis, getting a high loan-to-value (LTV) mortgage was not unlikely — if you only had a 5% or 10% deposit, you could achieve a 90% or 95% LTV mortgage. These days, many lenders are asking for a minimum of 15%, with some withdrawing their LTV mortgage offerings. This is due to market uncertainty as lenders worry over customers becoming trapped in negative equity. This is what happens when a borrower takes out a mortgage on a small deposit, only for house-prices to fall and the mortgage to become more than the value of the property.

For determined first-time buyers there are options — including schemes such as Help to Buy, Shared Ownership or Guarantor mortgages — but with the markets moving so fast and change happening all the time, it may be better to wait, save, and reassess in a few months.

Looking ahead

There is a great deal of uncertainty left about what will come next for the property market. In the short-term, there are certainly opportunities ahead as well as challenges.

We are only just beginning to see the conversations develop around how the coronavirus crisis emphasised inequalities amongst homeowners and renters. This includes looking at the long-term impact of mortgage and rental holidays, as well as the implications of how very different some people’s experience of lockdown will have been compared to others.

It is possible that there will be a real change to the shape of the housing market too as our lifestyle preferences change. Thanks to lockdown, we may see increased demand for green space in our homes or larger properties that better facilitate working-from-home. Likewise, with increased flexible and remote working, more people may leave the city for the countryside or look to regional hubs over major cities like London.

Whatever happens, it is inevitable that we will all start to feel the long-term impact of Covid-19 in the way we live, work and thrive. How that affects where we choose to have our homes is just one aspect — but it is a crucial one.

Tax treatment depends on individual circumstances and is subject to change. ikigai and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Authors: Harriet Allner and ikigai

Harriet Allner is a writer, blogger and fintech specialist. She cares about stories that matter and is passionate about promoting conversation around money positivity and financial feminism.

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