Letting Agents Sheffield

It can’t be denied, it’s clear, Britain’s property market isn’t just rebounding from Coronavirus, it’s in a full-blown boom mode!

House prices in the UK rose by 10.9% in the year to May. That’s the most rapid growth seen in almost 7 years, according to The Nationwide. The average house hit a new record value of £242,832

So is this expensive housing market moving now to “bubble” territory…

Why are property prices going up?

With many factors causing why housing market activity is going into overdrive in the UK right now. Monetary policy has been a major stimulus, and most importantly, credit has been piling into the housing market as mortgage lenders compete for business.

Many of the population, especially those on higher incomes with secure jobs that were able to adapt to the pandemic easier than others have saved money during lockdown, indeed Brits have most money held in their bank accounts than at any time in history previously! So there is the funds money to bid up house prices and this comes at a time if historically low interest rates, therefore leaving the money to grow in the bank is not an attractive option for many.

In addition to this, attitudes have changed, as a result of being restricted in when and where people can get out, many are looking to larger homes, open space in their home and a home in more rural areas. The allure of the bright lights of a city centre isn’t so strong when you can’t use all the entertainment there and you don’t need to go into the office as often.

Government intervention too has played a big role, too. The government, seemingly to keep prices high by making it cheaper to buy property, have introduced to the UK market a stamp duty land tax holiday. At the end of June, this holiday becomes less generous – the threshold drops from £500k to £250k. Then, from the start of October, the threshold drops back to £125k

So what next?

This trend for increasing property prices is set to continue as a result of; increased confidence on consumer spending while still many feel restricted on what they can spend their money on (many have cancelled foreign holidays as restrictions constantly change worldwide) lower mortgage costs, greater availability of deposits and also the return of low-deposit mortgages since early 2021.

Also, with low interest rates here to stay for the short to medium term with the base rate unlikely to change much before 2024/25 according to many analysts and a strong resilience of the job market as unemployment rates are likely to be less than first predicted, following the initial record levels of redundancies last year hitting young workers (under-25s) particularly hard.

Indeed, the Office for National Statistics is now reporting much more stable conditions, with the unemployment rate falling to 4.9% in the three months to February 2021.The Office of Budget Responsibility forecasts an increase to 6.5%, with it falling next year as the economy recovers further.

It would be nice if the upcoming end of the stamp duty holiday caused a pause on this housing market mania, at least cooled off the frantic activity levels & constant double-digit growth – however as we’ve seen before, once prices hit a “new normal” prices remain can remain resilient despite the perceived economic outlook.

Again, another factor down the line is any effect when the government’s furlough scheme finally closes at the end of September 2021 and for many this could be a watershed moment to determine where the strength of the economy really sits.

What should Landlords do?

No one has a crystal ball, whether there is a housing market correction, blip or full-on crash, whatever happens it won’t be for the same reasons “as last time” so it’s very difficult to predict with any level of certainty.

As ever buying right is important, the adage of you make money when you buy not when you sell is more applicable now than ever before. Don’t get carried away in the hype, it is likely property prices will not suffer any drop during the fall out of this pandemic – because the government makes it so – but it’s equally just as likely there is a decrease in asset values as wage inflation stagnates and spending habits return to normal and employment changes.

While property auctions reach huge purchase prices, especially for property that is typical auction stock that’s “in need of work”, and the larger property with outside space gets snapped up off the market almost instantly, it’s wise to keep a focus on the numbers to ensure an investment stacks, bearing in mind the cost of borrowing is likely to rise once the base rates comes off the floor.

Going forward we expect further inevitable media hype which ill fan the flames on the market as these price increases become more prevalent & into the mainstream public awareness. Construction materials have significantly increased in cost this year, the cost of imports around the globe having dramatic effects, could dissuade investors off refurb or construction projects, leading to those properties down in value.

What’s our prediction?

We feel there will be a recession “down the line”, perhaps in 3 to 4 years’ time, as it’s our view that the multiple government intervention measures have “kicked the can down the road” so the true effects of the pandemic and the subsequent property market boom this has produced, have not happened yet.

However, we live in such an inter-connected world, where its fragility was highlighted when one boat in the Suez Canal held up $60 billion of global trade, and property prices in the UK being such a political issue that governments are acutely aware of, so really, we think all should acknowledge that it’s very difficult to predict 3 or 4 years in advance with any conviction!


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