Looking at the HMRC data over the last 16 years, it’s evident that the varying of SDLT rates has a substantial and immediate impact on the housing market. I read somewhere that the Government estimated that the SDLT holiday, introduced to counter the effects of the lockdown, would probably increase average values by around 2%. With hindsight, I think that was probably an underestimate, but at the time I would probably have agreed with them.
As part of our consideration of the four pillars of the current market conditions, we need to rate each in terms of speed and severity of impact on the market to help us predict what the next 6 to 12 months will bring. For SDLT, I rate the impact as high and speed of effect as immediate. As the SDLT holiday unwinds, I believe it will cause a fall in the rate of increase in prices equivalent to around 4% in H2.
2. Interest Rates and Mortgage Availability
One of the things that Gordon Brown will be most positively remembered for during his stint as Chancellor will undoubtedly be his decision to move the control of interest rates from Government to the Bank of England in 1997/8. Making fiscally based judgements, rather than political ones, brought a new-found stability and avoided ‘knee-jerk’ reactions delivering short-term shocks to the property market.
In these days of ultra-low interest rates, any adjustment is spoken of in terms of ‘Basis Points’, 1/100th of 1 percent. So, 25 basis points is just a quarter of one percent. Rates are ‘nudged’ rather than adjusted and while they do still affect buyer sentiment, the popularity of fixed-rate deals and the current historically low levels of interest, make them a less powerful influence on the market. Much more significant is the availability of mortgages. If homebuyers can’t borrow, they aren’t able to buy, and that has an exceptionally powerful effect on the market.
News stories of rising inflation give cause for concern, but this is inflation from a low, covid-affected base and I believe it needs to be rising much more aggressively before the Bank and the Government consider it necessary to take market changing action. Particularly considering the need for economic recovery from the pandemic.
I’m no economist, but as far as the effects of our four pillars are concerned, while interest rates and mortgage availability have a fast, high impact effect on the market, I believe it is most unlikely we’ll see any major changes during the next 6 months. On balance, I am going to rate the impact of pillar number two as neutral in H2.
3. Lifestyle Changes
One of the most dramatic effects of Lockdown has been the ‘Working from Home’ (WFH) revolution. Will we ever go back to spending hours of our lives commuting into towns and cities to spend our days working alongside colleagues in over-crowded offices and travelling countless miles to meetings on clogged roads and motorways? I doubt it, not in the volumes we used to, in any case.
Homebuyers doubt it too. There has been a big change in the key factors influencing buying decisions. People are re-evaluating their life choices; do they really want to live how and where they are now, given that getting into an office every morning isn’t necessarily a consideration? There has been a significant increase in the number of people looking to move out of town and city centres. They are also worrying less about their proximity to a mainline station or a motorway junction. Gardens are suddenly a must have and space is also at a premium – and more than ever before, so is a fast internet connection and high-tech, sustainable living. (Developers take note.)
Properties that tick all these boxes are sold within hours of coming onto the market and are playing a significant part in driving average prices up.
The shift in popularity from flats to houses had already taken hold before the pandemic broke, for a completely different set of reasons, but Covid has dramatically accelerated the desire for a change in lifestyle, making the trend much more noticeable than before. This pressure cooker effect gives the impression that everyone is packing up and heading for the country, demanding huge gardens and home offices, but lifestyle changes, by their sheer nature have a gentler effect on the market. Don’t get me wrong, the smarter developers spot this sort of trend early and take advantage of it, but when it comes to the effect it is going to have on prices in the mid-term, it will be much less influential than our first two pillars and less immediate too.
This pillar will have a gentle effect and will continue upwards for the foreseeable future. In my calculations I estimate it will add around 1% to average prices in H2.
4. Consumer Sentiment
Consumer sentiment is such an important constituent part of the property market and is probably the very best guide to short and mid-term market movements. I often hear the argument that it is the property market affecting sentiment, rather than the other way around, but I’m a great believer in the ‘three-month wave’ effect. These are short-term trends in changing sentiment that are invariably replicated in the market in the following three months.
Even way back in August 2008, the three-month picture was a clear warning of difficult times ahead, with consumers’ confidence in the economy sliding from -43 in June to a new super-low of -63 in August – and that was before the queues started forming outside Northern Rock in early September and Lehman Brothers hit the buffers shortly after.
I’ve followed the GfK/NOP Consumer Confidence survey for more years than I care to remember, and it has always delivered. It’s simple, reliable and consistent and is always the first data source I refer to when considering where the market is headed next.