Why the third lockdown may bring an end to the housing ‘mini-boom’

Since the end of the initial lockdown in 2020, the UK housing market has experienced a ‘mini-boom.’ According to a report by the BBC, house prices in the UK grew by 7.5% in 2020, despite the economic fallout of the pandemic.

However, as the country moves into a third lockdown to halt the spread of the virus, experts fear that this may disrupt the housing market’s growth. Read on to find out why the third lockdown may bring an end to the housing ‘mini-boom.’

2020 saw strong growth in house prices after the initial lockdown

In the initial lockdown in spring 2020, the UK saw a slight fall in house prices. This was because social distancing rules prevented many house viewings, and many surveyors were unable to assess homes.

Once the government lifted the lockdown, several market factors combined to drive a surge of interest in the housing market. The ability for many people to work at home and the prospect of a second lockdown caused many people to reassess their housing needs, leading to a rise in interest in suburban or country homes with gardens.

Chancellor Rishi Sunak’s announcement of a Stamp Duty holiday in his Summer Statement further increased this interest as buyers were able to make significant tax savings. Until 31 March 2021, buyers can save up to £15,000 in Stamp Duty when buying a new house.

The increased demand caused by these factors has fuelled strong growth in house prices. According to a report by Halifax, published in the Guardian, the surge of demand pushed the average house price up to a new high of around £253,000.

However, whilst house prices experienced strong growth in the second half of 2020, the economic effects of the third lockdown may disrupt this.

The pandemic caused a significant reduction in the UK GDP

Whilst the lockdowns may have helped to reduce the spread of the coronavirus, they have caused serious disruption to the UK economy.

As many people remained at home during the initial lockdown, many businesses struggled with significantly lower sales. According to the Office for National Statistics (ONS), UK GDP contracted by around 25% in April.

As you can see from the chart below, whilst the economy has made some recovery since then, the GDP is still around 8% lower than its pre-pandemic level.

Source: ONS

Despite the government’s attempts to protect workers and businesses, the economic downturn has created a rise in unemployment. According to ONS figures, around 4.9% of British workers are now unemployed, in addition to a significant number of people who have been furloughed.

Unemployment and furlough have squeezed household finances, and so many people have been forced to pause their mortgage repayments. According to a report by trade body UK Finance, reported in the Telegraph, around 2.6 million homeowners have taken a mortgage holiday this year.

Some experts fear that if the third lockdown has a similar economic effect on businesses as the first two, it could drive the unemployment rate even higher, which would likely have a knock-on effect for the housing market.

If large numbers of people are unable to keep up with mortgage payments, this could lead to large-scale repossessions by banks. The subsequent forced selling, often done at a lower value to speed up the sale, could then drive down house prices.

House price growth was already slowing before the third lockdown was implemented

Whilst house prices continued to rise in the final months of 2020, there are fears that the mini-boom may already be losing steam and that the third lockdown could be the final nail in the coffin.

A survey by the Royal Institution of Chartered Surveyors, reported in the Telegraph, indicates that whilst buyer enquiries, agreed sales, and new listings all rose in November, they were still on a downward trajectory.

There are also fears that the end of the Stamp Duty holiday, which prompted large amounts of interest in the housing market, could also impact house sales when it ends on 31 March.

A report by property analyst Twentyci, published in the Times, stated that more than 300,000 property sales could be affected by the reintroduction of Stamp Duty.

Around 37% buyers have reported that they were only able to afford a deposit with the money they saved from the Stamp Duty holiday. When the tax is reintroduced, there are fears that many buyers will pull out of ongoing sales, which could then have a knock-on effect.

If the reintroduction of Stamp Duty were to coincide with a further economic downturn caused by the third lockdown, experts fear that the housing market may suffer a large fall in house prices.

Get in touch

If you’re considering buying a home and want to act quickly before the potential market uncertainty that the third lockdown may cause, we can help. Email enquire@london-money.co.uk or call us at (0207) 808 4120 to find out more.

Please note:
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.