Have the Foundations of the Housing Market Started to Crumble?

A consideration of the rise and fall of the housing market and impact on certain stakeholders.

The housing market had been stabilising prior to the pandemic striking, with much gratitude shown towards a robust labour market, a low Bank Rate meaning cheaper borrowing, and settling political tensions. However, the property market came to a halt due to the coronavirus outbreak as mortgage lenders were unable to carry out property valuations and were hesitant to offer new mortgages due to the uncertainty of a new borrowers’ repayment capacity (Financial Times, 2020).

The UK real estate has since revived, however, following the nation’s easing of the lockdown restrictions. Nationwide Building Society, one of the UK’s largest mortgage providers, reported a 3.7% annual house price growth, overcoming the year-on-year dip revealed from June 2020, during the height of the pandemic (Nationwide Building Society, 2020).

The severe restrictions imposed by the respective Governments and political bodies in response to the pandemic have forced residents, who have been seen to prioritise comfort over convenience, to reflect on their housing requirements; the rise in remote working and flexible arrangements has also encouraged many individuals to move out of highly populated city centres, such as Parisians (Financial Times, 2020). Due to the scarcity of properties in Germany, in comparison to their increasing population, rent prices are on the rise and the country’s housing market appears to have been sheltered from any negative impacts created by the pandemic, but instead has made the area appear more attractive to future investors due to its stability seen during the crisis (Financial Times, 2020). 

Despite an apparent “housing boom”, further analysis of the figures reveal that the cash-strapped buyers are still being priced out of the housing market, which simply accommodates those with healthy, bulging pockets of cash (Financial Times, 2020). Legal and General, a multinational financial services company, reveal that nearly a quarter of housing transactions will be supported by “the Bank of Mum and Dad” in 2020 (Legal and General, 2020). These worrying statistics clearly demonstration that the housing market is broken.

To assist economic recovery and to stimulate the housing market, the UK Government has introduced a temporary relaxation to the Stamp Duty Land Tax (SDLT), which is charged when purchasing a residential property, and these measures are expected to remain in place until March 2021 (Gov.UK, 2020). To purchase a first home costing £250,000, a buyer would be saving themselves £2,500 in SDLT contributions (ThisisMoney.co.uk, 2020). However, these cost-saving measures are not only targeted at first time buyers, but also benefit buy-to-let investors and second home purchasers. It is questionable whether this was a missed opportunity for the Government to fix the broken housing market, and whether the measures are serving the right purpose, supporting those first-time buyers desperate to step foot on the housing ladder, instead of inadvertently creating higher demand and forcing up house prices, pushing a first-time buyer’s goal further into the distance than ever before.

Lenders have also withdrawn offerings of riskier lending, such as those with a high loan to value, which is admittedly a sensible reaction to the financial crisis as those who cannot afford their own deposit, or are struggling to build disposable income at the end of each month, are more likely to default on payments in the longer term. Then again, rising living costs and ever-increasing rental prices, due to these buy-to-let investors and second home purchasers, mean that these cash-strapped buyers are in the position they are in due to no fault of their own. Unfortunately, this vicious cycle will not stop until the Government finally recognise their predicament and offer support to these individuals only, and not encourage the commoditisation of houses, but instead encourage home purchases to be simply that; the purchase of a home.

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