A cooling property market affords the right moment to reflect on the stamp duty holiday

As the stamp duty holiday draws to a close, we mark the end of one of the more remarkable periods that the UK property market has ever seen.

A cooling property market affords the right moment to reflect on the stamp duty holiday

Nikes Khagram is founding partner and director of KSEYE

As the stamp duty holiday draws to a close, we mark the end of one of the more remarkable periods that the UK property market has ever seen.

It is clear from the data that the government’s plan to stimulate the market came to fruition, and in some style. According to the ONS, average UK house prices spiked 13.2% year-on-year to June 2021, while figures from HMRC reveal that the same month saw the more property transactions completed than any other month on record.

It is no coincidence that these figures coincide with the first tapering down of rates, as buyers and investors rushed to take advantage of tax savings worth up to £15,000.

That UK property is also highly attractive to investment from abroad is, in many ways, largely a consequence of the dependability of this asset class, but is equally significant in the inexorable upward climb of house prices on these isles.

In CBRE’s 2021 EMEA Investor Intentions Survey, it was found that London remains the most appealing city in Europe for property investors.

This comes in spite of fears that Brexit, and the trend during the pandemic among buyers to leave the city for properties in more rural areas, would leave the capital a weakened body in the eyes of investors.

In the wake of the SDLT holiday, the question now is what the coming months will have in store for the market. On the one hand, it is feasible to suggest that as countries (and their economies) around the world begin to restart in earnest, the UK could be the beneficiary of the releasing of a bottleneck of investment capital, on a scale which could be fairly inelastic to the additional cost of a revived stamp duty.

Conversely, however, it is anticipated that, given the flurry of activity in the market over the past year, we will see a much cooler market in the final quarter of 2021.

How could the market shape up in Q4?

Naturally, a calming of market activity will have an influence on price behaviours – though speculation that the property boom has reached unsustainable levels and must therefore be promptly followed by bust are likely overblown.

As mentioned before, property investment is almost uniquely popular in the UK, and long-term incremental growth over many decades highlights this. For instance, data from Halifax’s house price index shows that in the last 20 years, the value of UK property has more than trebled.

When factoring in that this period includes five prime ministers, a global economic recession, Brexit, and a global pandemic, there is an air of undeniable resilience to the market, which suggests it is predisposed on an aggregate level to anchor the UK economy.

Of course, there are a number of social and political reasons underpinning this; property value and liquidity in the market has been prioritised by successive governments – yet this forms more of an argument for confidence in the stability of the market, rather than against.

Limited supply and, more recently, low interest rates have also driven up property values and buyer demand, respectively. These trends will not dissipate any time soon.

House prices are forecast to grow by 3.5% a year between 2022 and 2024, signalling that the sensible approach to analysing the stamp duty’s influence is to view it as having an acceleratory and stimulating effect on the longstanding direction of travel, which will stabilise into something more sustainable.

Caution must be exercised

With price levels currently at record highs, of course the sector must be guarded against the possibility that we will see some form of downward correction in the coming months, which could, at worst, leave those who took advantage of the tax relief unable to sell property due to the value falling below the value of the property finance they secured against the asset, resulting in a future market standstill.

There are further long-term concerns that the sector must consider with sincerity; with prices at record levels, and rural areas seeing enormous growth relative to well-established urban real estate, prospective first-time buyers who missed out on this tax relief may meet a challenge in accessing the property ladder, even in traditionally lower-value areas.

For lenders, the message right now is to demonstrate responsibility and diligence. We must monitor how the market transitions from such a frenetic period into the so-called “new normal”.

And while a somewhat cautious approach would prove wise, we can remain confident the UK’s love affair with bricks and mortar is as strong as ever.