As you might be aware, I have been writing a series of articles since March - mainly to do with the lettings market, the changes in legislation and the effect lock-down measures were having on Landlords - all articles can be viewed here.
When it comes to the sales market, there's plenty going on there too... BTW: before continuing, if you missed it... We published a 2-year forecast around 2 months ago, you can read it here.
Latest news: STAMP DUTY SCRAPPED up to £500,000 with immediate effect!
In this newsletter, I would like to provide a summary of the changes announced by the Chancellor today, look at actual evidence on what has been happening in the sales market, to understand and determine whether there was a need for these changes and attempt to draw conclusions about whether this initiative will have the intended impact of boosting sales.
As always, updates on other areas will be sent out in due course.
A summary of the Stamp Duty changes announced today
In a bid to kick-start the property market, from today until 31st March 2021, home-buyers won't pay stamp duty on the first £500,000 of a property's purchase price.
This change will save approximately £4,500 per average transaction, costing the treasury approximately £4.1bn.
Before today, the threshold where buyers pay stamp duty in England was £125,000 (or £300,000 for first-time buyers when buying property less than £500,000).
No details have been released yet about additional homes or higher levels of stamp duty for homes above £500,000; it is anticipated that Stamp Duty for these segments of the market will remain unchanged.
Was there a need for this change?... Mainstream media versus ACTUAL activity
Since lock-down measures were released for Estate Agents, the pent-up demand that we had anticipated has really started to show. As a summary, Rightmove statistics of what was actually happening on the ground were showing:
✅ TOTAL ENQUIRIES = UP ⬆
✅ ASKING PRICES = UP ⬆
✅ VALUATIONS AND DAILY LISTINGS = UP ⬆
✅ AVERAGE % OF ASKING PRICE PAID = UP ⬆
Also, the latest House Price Index issued mid-June told us:
✅ Buyers agreeing to pay 97.7% of the asking price on average, an improvement from 96.6% for sales completed in February
✅ Delayed spring market leads to traffic boom with Rightmove recording its 10 busiest ever days in May and June
✅ Number of people phoning and emailing estate agents hits new daily record, 40% above the level seen in early March Daily listings up on last year
✅ 175,000 sellers held off due to lockdown - but they’ve sprung into action with record number of owners asking for valuations
✅ Number of sales agreed recovers to latest daily rate of just 3% down on a year ago
✅ 40,000 new sales agreed since market re-opened on 13th May, releasing flood of pent-up demand
Note: You can download the full report here
For comment and opinion on how these statistics tie in with today's announcement, please see my Personal Notes section below.
Personal note from me...
Is it me, or am I just always missing something obvious when it comes to these types of initiatives?... Seems like every time there's a change in Government guidance, I'm thinking, "That's great, but does it fix the problem on the ground?".
I think it's fair to say we are a little bored of the mainstream media at the moment, feeding us doom and gloom without ANALYSING the EVIDENCE. In this case, I'm not even sure there is a problem (as things stand) - maybe after furlough in October, okay the housing market will most likely need assistance but at the moment, all seems a bit rushed to me.
And, if we are trying to kick-start the housing market - is reducing Stamp Duty actually the most effective way? It's called the Property Ladder for good reason, that there are people on each rung, and they progress to the top. By its very definition and as an example, for rung 3 to move to rung 4, we need 2 to move also - therefore someone has to take rung 1 = FIRST TIME BUYERS (FTBs).
I guess, what I'm trying to say is that without FTBs the ladder doesn't work and the housing market grinds to a halt.
If we explore this a little further, we get to a key question: does this new initiative help FTBs? Well, yesterday they were paying ZERO STAMP DUTY up to £300,000, and seeing as the average price of a home in 2019 across England for an FTB was £210,000 - I'm not sure anything has really changed because most FTBs weren't paying Stamp Duty anyway.
The real stumbling block for FTBs is not Stamp Duty, in fact - I cannot think of a single conversation I have had with anyone looking to buy their first home where they have said, "Stamp Duty is REALLY HIGH so we've decided to put our plans on hold".
What I have heard THOUSANDS of times over (and I'm sure you have too), is FTBs not being able to find the high deposits required to afford a mortgage for their purchase.
With all this in mind, how significant can the increasing of the Stamp Duty threshold be? The way I see it, it would be a lot more effective to help solve the Deposit problem.
For example, ideas such as:
1. Helping mortgage companies increase their levels of lending (currently around 85% Loan-to-Value which at £200,000 comes to a £30,000). If we could bring the loan to 95%, the Deposit would be significantly lower at £10,000.
2. Putting the £3.8bn loss in Stamp Duty income towards opening the Help-to-Buy scheme for all properties (i.e. The Government is currently helping finance Deposits for FTBs that are buying new builds, I am suggesting that it could offer this scheme to all homes).
So, in one word: do I think lowering Stamp Duty is the answer? No.
For the avoidance of doubt, I am very positive and optimistic about the housing market (as I set out in my 2-year prediction) - just pointing out that this particular initiative may not have the impact we would all like.
If you would like to discuss any of this in more detail, or have any questions - whether to buy now, hold off, sell... ANYTHING AT ALL! We deal with this all day every day 🏆 and like having conversations too 📣 ... Please get in touch, I would love to hear your comments...
Sincerest regards, Ali.
Posted 09 July 2020
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