The UK housing market has rallied in 2020 – here’s what that means for 2021

While the COVID-19 pandemic has hurt a variety of UK industries, the UK housing sector is experiencing a seismic boom in 2020 thanks to a post-lockdown surge in demand and the UK Government’s new Stamp Duty holiday. But the UK property market’s successes are having positive effects on other business sectors, too.

According to the Nationwide House Price Index, annual house price growth in the UK has now reached its highest level in four years. The average property price has increased 5.0% over the last nine months, coming in at £226,129 at the end of September 2020.

That figure represents a one-point increase against the average house price in August, and a rise of more than £10,000 year-over-year. That’s the most price growth the market has seen since September 2016, and there are several reasons for the UK property sector’s unexpected successes – particularly when bearing in mind the otherwise catastrophic effects of the COVID-19 pandemic.

“The rebound reflects a number of factors,” Chief Economist Robert Gardner explained in Nationwide’s most recent index report.

“Pent-up demand is coming through, with decisions taken to move before lockdown now progressing. The Stamp Duty holiday is adding to momentum by bringing purchases forward. Behavioural shifts may also be boosting activity as people reassess their housing needs and preferences as a result of life in lockdown.”

Each of these factors have contributed to the UK’s housing boom in decidedly different ways – and fortunately, they should all continue to bolster sales activity and build on the sector’s growth right into 2021.

Stamp Duty holiday

In July 2020, Chancellor Rishi Sunak unveiled a range of new economic proposals designed to help stimulate industrial activity and keep business moving. Amongst some relatively creative policies, that series of measures also included the decision to temporarily suspend the Stamp Duty Land Tax (SDLT) for most property transactions.

The SDLT is more commonly referred to as ‘Stamp Duty’ in England and Northern Ireland. In Scotland it’s called the Land and Buildings Transaction Tax, and in Wales buyers it’s referred to as the Land Transaction Tax.

Regardless of what it’s called in each part of the UK, Stamp Duty is essentially just a proportional tax that homebuyers pay to the government when a property changes hands.

But as part of the Chancellor’s new Stamp Duty holiday, homebuyers will no longer have to pay any tax on most residential property transactions of under £500,000. This tax holiday will remain in effect until 31 March 2021, although there are some fine points and exceptions that buyers should bear in mind.

While homebuyers will not be required to pay any SDLT on homes of under £500,000, a 5% tax will still be applicable on all residential property transactions valued at between £500,001 and £925,000. Likewise, a 10% tax rate will be applied to transactions of £925,001 to £1.5 million, and a 12% rate for everything over the £1.5 million mark.

The tax will also still apply to homebuyers who are purchasing a second home, although the rate in which buyers will be taxed is being drastically cut until March 2021. Additional residential properties of £500,000 or less will be subject to a 3% SDLT.

Just like the tax holiday for buyers owning a single property, this reduced SDLT for second homes increases on a proportional basis in line with the transaction price.

Analysts say the UK Government’s property tax holiday is set to save the typical UK homebuyer up to £15,000 in closing costs. That’s why the sector is predicted to get an extra bump from the Stamp Duty holiday at the start of 2021, building on the market’s already impressive trajectory.

Mortgage approvals are on the rise

Because this year’s pandemic has forced so many individuals and families across the UK to spend a whole lot more of their time sitting at home, research suggests that the UK Government’s lockdown restrictions have also been a major contributing factor in stimulating the property market.

Around 10% of those surveyed by researchers at Nationwide in September said they were currently in the process of moving because of the pandemic. Another 18% of respondents said that they are thinking about moving for the same reason, and one in three of those individuals said they’re looking for properties in a different area with easy access to outdoor spaces.

With demand on the rise and intent cemented, mortgage applications are being approved at record rates.

According to official figures from the Bank of England (BoE), UK mortgage approvals rose from 66,000 in July 2020 to 85,000 in August. That represents an almost three-fold increase year-over-year, and the highest volume of monthly mortgage approvals since 2007.

Other industries are benefiting from the housing boom

The impacts of the UK Government’s Stamp Duty holiday and increasing lending activity aren’t limited to property transactions. The housing sector’s rally is also having a knock-on effect on the UK’s building sector.

According to September’s IHS Markit/CIPS UK Construction Total Activity Index, construction growth rose to 56.8 points last month. That represents a rise from 54.6 points in August, with any reading of 50 points or above indicating market growth.

As a result, the UK construction industry has now posted four consecutive months of impressive growth activity – beating the already relatively optimistic forecasts that analysts had been expecting over recent months.

“Following August’s slowdown, growth in UK construction activity rebounded strongly in September. There were faster increases in activity in both the housing and commercial sub-sectors, which more than offset a sharper decline in civil engineering work,” IHS Markit Economist Eliot Kerr said in September’s report.

“Forward-looking indicators point to a sustained rise in activity, with new work increasing at the quickest pace since before the lockdown and sentiment towards the 12-month outlook at its strongest for seven months.”

The rebound in UK construction activity accelerated in September, supported by a mini-housing boom that helped the economic recovery even as tightening restrictions clouded the outlook.

Statistically speaking, the UK’s construction industry accounts for approximately 7% of the country’s overall economic activity. That means any boost to the construction sector subsequently goes on to fuel demand for building materials, housing goods and more.

Looking ahead to 2021

With demand for property and building work on the rise, analysts are predicting the UK housing market is going to continue riding high right into 2021.

At the end of September, property experts at Savills UK revised their five-year forecast of the country’s housing market. Based on this year’s property boom, Savills is now anticipating house prices to grow by 20% between now and 2024. Those projections include an additional 4% worth of growth by January 2021.

The north-west of England is expected to generate the most price growth in the next few years, at a cumulative 27.3%. Scotland is second on the list at 25.4% growth, while Yorkshire and the Humber come in third with a rise of 24.1% by 2024.

The market is expected to be particularly populated by first-time buyers next year. Savills is predicting an 8% increase in cash transactions by first-time property buyers in the UK – rising from a forecasted 282,000 transactions by the end of 2020 to 306,000 in 2021. Cash purchases are likewise predicted to go up by 17% next year.

This growth is likely to be further stimulated by the UK economy’s projected growth of 8.5% over the next 12 months.

And although unemployment is expected to hit record levels in the first quarter of next year, analysts say that employment will then rise progressively over the remaining nine months of 2021. That means house prices aren’t expected to be adversely affected by the unemployment jolt being anticipated at the start of next year.

Translation: the UK’s housing boom is far from over, with growth anticipated in the property market and ancillary sectors well into 2021 and beyond. That should be great news for buyers and sellers alike – and presents a wide range of dynamic business opportunities for companies operating in these spaces.

Check out the Linnear COSEC knowledge centre to ensure your business stays up-to-date on the latest industry news, or get in touch to find out how our company secretarial services can drastically reduce your costs and free up your time to help you focus on running your business.

About the author

Nicholas joined in 2018 to set up the Company Secretarial Department in the group’s company formation divisions. After establishing the department, he was a key stakeholder in the development of Linnear CoSec. Prior to joining the group, Nicholas worked in a variety of client-facing positions at an international provider of corporate services, caring for a diverse portfolio of companies. He is a Chartered Secretary and Governance Professional, and holds a bachelor's degree in Politics as well as a Masters in Corporate Governance.

Leave a comment

Your email address will not be published. All fields required