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Will government stimulus head off housing market challenges?

A number of measures have been introduced to help boost activity levels, but the economic outlook remains dark
Will government stimulus head off housing market challenges?

Industry statistics have indicated a flurry of activity in the weeks since the housing market emerged from lockdown, but the government is not fooled that its longer-term health is assured. HM Treasury has thrown cash at the property market in an effort to stir up transactions in the coming months, unveiling a package of stimulus measures including raising the stamp duty threshold, extending the current Help to Buy scheme and allocating £360m for the building of new homes on brownfield sites.

UK house prices grew an annual 1.5 per cent in July, according to the Nationwide House Price Index, as pent-up demand helped boost activity levels. That was a rebound on the 0.1 per cent contraction suffered in the prior month, when prices entered negative territory for the first time in eight years. 

But the unprecedented shutdown of housebuilding construction and sales sites and restriction on property viewings and house moves for almost two months will cost the market £27bn in lost sales in 2020, Zoopla predicts, with those agreed during the first six months of the year down a fifth on 2019. 

In an effort to help housebuilders deal with a backlog in work the government last week confirmed speculation that it would extend the deadline for help to buy homes to be built by two months, to 28 February. However, the official legal completion date for purchases to qualify for the government support remains 31 March, although some buyers who had reserved a home before 30 June may qualify for an extension to 31 May. 

The scheme, which is due to be restricted to only first-time buyers and will be subject to regional price caps from April, has helped fund 272,852 property sales since it was introduced in 2013. Yet the extension has fallen short of that requested by housebuilders including Redrow (RDW), which urged the government to maintain the existing scheme beyond March or change the scope of the new scheme to provide access to a broader range of buyers to ensure a sustainable recovery in the market.

Others have questioned whether an extension of just two months will adequately mitigate the capacity issues facing housebuilders, which are operating at between 60 per cent and 85 per cent of normal output. The announcement offered temporary relief for housebuilders, agents and thousands of buyers whose Help to buy purchase might otherwise have been jeopardised, says Zoopla director of new homes, Alex Rose. “However, the devil is in the detail, and many would argue that a two-month extension might not give housebuilders enough time to meet these build deadlines,” he says. 

Yet the more lauded stimulus measure came three weeks earlier in chancellor Rishi Sunak’s mini-Budget, when he announced that the stamp duty threshold would be raised in England and Northern Ireland from £125,000 to £500,000. Purplebricks (PURP) chief executive Vic Darvey says the change has already “accelerated” the rebound in activity, with record instructions of more than 7,000 in July. 

But the degree of benefit is, naturally, unequal. Based on second-quarter house prices, the average saving in London would be almost £14,000, according to Nationwide, in contrast to only £90 in the north and just under £800 in Yorkshire and Humberside. The benefit of the change may not be uniform, says Colliers International head of residential Andrew White, but it will still stimulate moves. “In the south-east we do get a lot of churn,” he says. That churn has been limited by stamp duty, particularly in the mid-market south-east, he adds. 

The stamp duty changes are more valuable to those that are upsizing or downsizing, says Savills (SVS) head of residential research, Lawrence Bowles. “It’s more help for people that have less trouble getting a mortgage,” he says. If you’re buying a property valued at £500,000, the 3 per cent saving made due to the threshold increase does not make up for the additional 10-15 per cent you need for a deposit if you are not able to get a mortgage at a higher loan-to-value (LTV) ratio, he adds. 

While more lenders have returned products with higher LTV ratios attached, lack of mortgage availability is still an impediment to those with lower deposits, typically first-time buyers. The number of available products at 90 per cent or more stood at 90 in July, according to data from Moneyfacts, less than a tenth of those available in March.

The implementation of the government’s furlough scheme has meant lenders are taking more time to carry out due diligence and underwrite risk appropriately, says Mortgage Advice Bureau (MAB1) chief executive Brian Murphy. “Lenders need to be far more intrusive when underwriting and assessing a customer’s circumstances,” he says.  

High demand for higher LTV mortgages and the need for lenders to balance the risk profile of their books means they have not only limited these types of products, but also raised rates, Mr Murphy adds, although they are still at historically low levels.