Unlike the holiday and hospitality industries, the property market has remained open and active throughout the pandemic; we had a few weeks in the first lockdown where we were very restricted in how we could operate but after that, subject to appropriate Covid-safe protocols, we were allowed to carry on selling and letting properties – for which me, my co-directors and all our staff are very thankful! We know how lucky we are.
To help sustain the momentum in the ‘open’ market, Government introduced the Stamp Duty Holiday. From that day onwards the property market went mad! In an attempt to close deals before the Stamp Duty Holiday ended deals were being struck and time pressures applied. As few properties were coming to market the usual desperation to buy kicked in with many, and ever-increasing offers being made on properties across the price spectrum. Prices were being driven upwards.
The Stamp Duty Holiday was extended, with the intention of giving those already in chains a chance to complete their purchase and benefit from the tax saving. The extension achieved its objective, but it also allowed new buyers into the market who saw the opportunity to save some tax. Unbeknown to many of those ‘new’ buyers in the market, any tax saving had in reality already been lost due to the higher prices they were faced with paying simply to secure a property.
This ‘upward spiralling demand’ was further fuelled by cheaper mortgage deals and lenders reducing their Loan to Value ratios. Competition between lenders was driving this downward pressure on interest rates, but it was further stimulated by the Government’s new Mortgage Guarantee Scheme. The bank of mum and dad had been busy during the pandemic offering to help their children with 15% to 20% deposits, but now the Government had opened the doors to mortgages requiring only 5% deposits. Even more buyers came into the market further fuelling demand.
We have seen properties listed for sale resulting in 50 enquiries in the first few days, with as many as 50% of the enquiries from buyers in proceedable positions i.e. no chain, Proof of Funds available, etc. Video viewings helped reduce the number of people wanting physical viewings, but with 10+ offers on many properties, it was inevitable that a ‘Best and Final Bid’ scenario was adopted for many sales. Sale prices have frequently been agreed at 5% – 10% above the guide price, but some have been as high as 20% over the guide price, with any Stamp Duty savings becoming negligible or non-existent.
This morning I read that Virgin Money are launching ‘Green Mortgages’ on new builds that meet their green criteria. The rates are as low as 1.25% for those buyers with large deposits/plenty of equity from their former home. Is it any wonder buyers are desperate to purchase a better home with rates as low as this? When our daughter was a baby, my wife and I were paying a mortgage rate of 15% on our three-bedroom semi! Admittedly, property prices were lower and we could still afford to go out for a meal at a local Italian once a week, but we’d have thought we’d won the lottery if we could have had a mortgage at today’s rates.
Virgin (there are other lenders in the market!) have also announced a reduction in their buy-to-let mortgages. Virgin have a 1.85% 2-year fixed, or a 2.04% 5-year fixed (both carry modest arrangement fees) deal available. For what is effectively a commercial loan, these are extra-ordinarily good rates. As I was on a deadline to write this article (my daughter, Hayley, who runs our Marketing Dept. is a tough task-master when it comes to our newsletter) I haven’t had chance to review other lenders, but I’m guessing there are similar deals available in the mortgage market.
Recent tax changes have encouraged some landlords to leave the buy-to-let market (which has released some housing stock into the owner-occupied market helping to meet demand) but with such attractive mortgage rates we’ve seen a surge in demand from seasoned investors. We launched the sale of a block of 7 flats in Roundhay last week. Within the first couple of days we’d had 40 enquiries from up and down the country. The feverish nature of the enquiries generated 10 ‘unseen’ offers – with many of these being well above the guide price. This overbidding to try and secure the property is despite the fact that even if the buyer completed their purchase before the end of June they would pay Stamp Duty of over £40,000 (rising to over £50,000 if the sale didn’t complete until after the 30th June!).
I am being asked daily by customers and clients whether I think property prices will collapse when the Stamp Duty Holiday ends. Given the fact that it has been unrealistic to think a purchase could be completed by the end of June for the past 3 or 4 weeks (solicitors are so busy they cannot take on new work with such tight deadlines) we’ve still seen higher and higher offers being made. Gazumping is happening where unsuccessful bidders cannot find another property, returning to ones they offered on a week or two ago in an attempt to lure the seller from their current agreed sale. We have potential buyers ringing us 4 or 5 times an hour trying to book a viewing (please bear with us, our sales team are only human and only have so many hands and so many hours in the day to handle dozens of enquiries per hour). With this frenetic activity I cannot imagine demand is suddenly going to drop off a cliff on the 1st July. That is what would need to happen to see property prices tumble.
Offers made today on freehold properties, where there is no chain, will not complete until at least the end of July (I can hear many of my competitors imploring me to be even more realistic!) and buyers of leasehold flats are aware that completion is highly unlikely before the end of August (unless they have cash in the bank to complete the purchase). Therefore, the majority of buyers are already factoring-in the extra Stamp Duty they will have to pay when they complete their purchase in July, August or September. I expect the end of June to pass without any impact on property prices, and with record low interest rates likely to be around for the next year or so, I can only see property prices continuing in one direction. Good news for anyone selling-up, but not good news for those trying to buy.
– A Newsletter Editorial by Director Michael Moore FNAEA, MARLA.