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How is coronavirus affecting house prices?

Discover what the pandemic means for buyers, sellers and homeowners

How is coronavirus affecting house prices?

The UK property market is enjoying a boom right now, with house prices rising by nearly 9% year on year. 

Here, Which? explains what’s happening to house prices and provides advice on making an offer on a property in these uncertain times.

What’s happening to the property market?

The property market is open and active throughout the UK. Estate agents are conducting in-person house viewings and buyers are able to move home, despite the Covid-19 measures still in place.

Since last July, the UK property market has been on the rise, largely fuelled by the government temporarily cutting stamp duty.

The breadth of the cuts vary from country to country, but they mean buyers could potentially save up to £15,000 in tax if they move before the deadline, which has been extended in England, Northern Ireland and Wales.

Transaction numbers rise as buyers race against time

The number of houses being sold has risen significantly since the tax cut came into force.

Provisional data from HM Revenue and Customs (HMRC) shows that 117,860 sales went through in April.

The graph below shows the number of sales registered each month since the start of 2020. The spike you can see in March was caused by buyers rushing to complete deals before 31 March – the date the stamp duty holiday was originally meant to end.

How have house prices changed?

We’re getting a clearer picture of the impact coronavirus has had on house prices, but with the ongoing stamp duty holiday and continued uncertainty over what will happen next with the pandemic, the figures could continue to fluctuate.

The most reliable barometer of house prices is the Land Registry’s UK House Price Index, which is based on sold property prices. It works on a two-month lag, so the latest available figures are for April.

The Land Registry says the average price of a property in the UK rose by 8.9% year-on-year in April to reach £250,772, as shown in the graph below.

Rightmove’s house price index is more up-to-date, but it’s based on asking prices rather than sold prices. In May’s report, it found average asking prices had risen by 1.8% month-on-month and 6.7% year-on-year.

Nationwide’s index (based on mortgage lending) reported a 1.8% monthly rise and 10.9% annual rise in prices in May. Halifax’s index (also based on lending) reported a 1.3% monthly and 9.5% annual increase.

What will happen in the remainder of 2021?

There’s optimism around the property market at the moment, with buyers competing over homes in the most sought-after areas.

Research by Rightmove found the average time to agree a sale in April was 45 days, the lowest figure registered since the start of the pandemic.

Experts had predicted that house price growth could slow once the government’s coronavirus financial support schemes and the stamp duty cut come to an end, but the schemes’ recent extensions have given pause for thought.

House prices could rise by 4%

The estate agency Savills now says it believes house prices will rise by 4% in the remainder of the year, just months after predicting that values would remain flat in 2021.

Lucian Cook of Savills says: ‘By extending both the stamp duty holiday and the furlough scheme in the Budget, the Chancellor has significantly reduced the downside risks in the mid-year, while a recovering economy should support price growth towards the year-end.’

Lack of supply will keep prices high

The rise in demand from buyers hasn’t been met by a flurry of new properties coming on to the market, and this imbalance could keep prices high in the coming months.

Mark Hayward of the estate agency group Propertymark says: ‘The market is experiencing a growing imbalance of supply and demand, and we see no indication that supply levels will increase. We firmly remain in a strong seller’s market which will impact house prices as buyers bid to secure their dream home.

‘In order to stop a multitude of viewings for a property while restrictions are still in place, agents have been able to revert to the traditional practice of creating a hot-list of able buyers who can act quickly.

‘Due to the stamp duty holiday extension, we see this continuing for months to come.’

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How does the stamp duty extension work?

As we mentioned earlier, transaction numbers and house prices have been rising since the start of the stamp duty holiday.

The tax break has been extended in England, Northern Ireland and Wales, after claims that thousands of sales could fall through due to delays in the home-moving process.

In England and Northern Ireland, the tax-free threshold of £500,000 will remain until 30 June, a three-month extension on the original 31 March deadline.

Between 1 July and 30 September, the threshold will be reduced to £250,000, before returning to £125,000 for home movers from October.

In Wales, the temporary tax threshold of £250,000 will remain until 30 June. The tax break in Scotland ended on 31 March.

How do house viewings work at the minute?

During last year’s lockdown, estate agents began offering video house viewings, and these are continuing to play a part.

The government’s latest guidance says buyers should use virtual viewings where possible.

If you do view a property in person, you need to follow social-distancing measures. You must sanitise your hands when entering homes, avoid touching surfaces and always wear a mask unless you’re exempt.

Row of houses

Is it possible to get a good mortgage deal?

Since the pandemic began, the number of mortgage deals on the market has fallen dramatically, but there are now plenty of good rates out there – especially if you have a bigger deposit.

Data from Moneyfacts shows that average rates have been on the rise in the last few months, but they still remain lower than pre-pandemic levels.

Buyers with deposits of 5% and 10% have been hardest hit by deals being withdrawn, though first-time buyers have been handed a boost by the new 95% mortgage guarantee scheme, which launched in April.

Buyers locking in low mortgage rates

David Hollingworth of L&C mortgages says: ‘Mortgage rates remain competitive, and this will help boost borrower affordability and confidence. Availability for those with smaller deposits has been improving, with lenders returning to the 90% and 95% mortgage markets.

‘With demand still high as we begin to see restrictions ease, there’s little to suggest that house prices will face a hit in the near term. 

‘Overall, home buyers have been showing that they remain confident enough to move during a pandemic and take advantage of low mortgage rates.

‘Borrowers can fix their rate in order to protect against any potential future fluctuation, and many have taken the opportunity to do so.’

Which? coronavirus advice

Experts from across Which? have been compiling the advice you need to stay safe, and to make sure you’re not left out of pocket.

Keep up to date on the latest coronavirus news and advice with Which?.

This story was originally published in March 2020. It is regularly updated with the latest figures from various leading house price indices. The last update was on 16 June 2021.

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