By Jamie Johnson, CEO of FJP Investment
As we exit lockdown, it’s interesting to see the government’s main priority being to reignite the UK economy. The recently announced nine-month stamp duty holiday, introduced by Chancellor Rishi Sunak on the 8th of July, marks the latest government act in this effort as it relates to the property industry.
While this reform has been positively received, there are still questions over whether similar tax exemptions are needed to encourage more property transactions over the coming months. This will be revealed once the full impact of the stamp duty holiday is realised.
Setting the scene
For the years preceding 2020, UK house prices stagnated as a result of Brexit uncertainty. With no government able to successfully push a withdrawal bill through the House of Commons, potential buyers held off on pursuing transactions for fear of a sudden market crash as a result of a no-deal Brexit.
Boris Johnson’s victory in the December 2019 election put an end to such uncertainty and facilitated what commentators deemed the ‘Boris Bounce’. The release of pent-up demand drove market activity upwards and, as a result, property prices increased for the first time since 2016.
COVID-19, unfortunately, introduced an even greater uncertainty into the minds of buyers. Even if the Government hadn’t explicitly warned people off moving home until May 13th, social distancing concerns meant that many of the face-to-face meetings transactions necessitate were next-to-impossible to facilitate.
But there are reasons to be positive. As we exit the lockdown period; there are signs that the property recovery may be underway. Rishi Sunak’s new initiative should be heartily welcomed, as I believe it will provide the assurances needed for buyers and sellers to once again return to the property market.
Set for revival
Brexit and COVID-19 are similar in the ways that they’ve hindered the property industry by supressing demand for property across the nation. Where they differ, however, is how this hindrance is lifted. In the case of Brexit, a new political landscape brought about by Boris Johnson’s resounding election victory in December 2019 quickly reassured buyers into pursuing transactions once again. Conversely, COVID-19 remains omnipresent in our daily news cycles, despite the government’s efforts to get the economy moving once again.
This newly announced stamp duty holiday, along with the gradual decrease in UK COVID-19 case numbers, has already enticed some buyers and investors back to the UK property market. The rate in which the coronavirus is deflating the property market is already slowing down, and house prices this June remain 2.5% higher than they were last year. For all of the disruption caused by COVID-19, it still hasn’t managed to wipe out the strong gains in house prices seen at the beginning of the year due to the ‘Boris Bounce’.
Property remains a leading asset for investors
To examine the nature of this pent-up demand further, FJP Investment recently surveyed 850 property investors to see how they felt about property as an asset in the wake of COVID-19.
The results were in line with the thinking laid out above. Only 12% disagreed with the sentiment that property is a safe and secure asset amidst a global crisis, but 43% stated that they weren’t planning on making any large financial decisions until they believed COVID-19 to be contained.
As the virus is progressively contained, then, it would follow that such buyers will gradually return to the market. In fact, I would argue that COVID-19 has not decreased demand at all – merely held it back for a period. Savills agrees with such a view, having proudly stood by their pre-COVID 5-year-forecast of 15% property price growth by 2025 last month.
Of course, by the very nature of COVID-19 as a virus, this optimism is based on a degree of hope. A second spike in COVID-19 cases, a virus mutation, or unforeseen economic consequences may delay this property recovery even further. Thankfully, the lifting of the UK’s lockdown measures has so far progressed with relatively minor hiccups.
The initial market rebound as pent-up demand was first released was greater than analysts had expected, and I believe the long-term perspective will similarly be rosier than many commentators fear. After all, there is a reason why UK property remains an asset in such high demand amongst both international and domestic buyers.
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