Britain’s housing ‘boom’ obscures a divided market

Against the backdrop of the deep economic crash unleashed by the coronavirus pandemic, and in defiance of many predictions, house prices in the UK have hit record highs.

Last month, prices were 3.7 per cent higher than a year earlier, according to the Nationwide building society. In the four months since the government took the housing market out of the deep freeze with the relaxing of coronavirus measures, the number of sales agreed has also surged. 

But this is not a boom for everyone, and beneath the headline numbers lies a polarised housing market, in which the wealthy are active and the less well-off are increasingly shut out. 

“Who’s buying? It’s people with money,” said Richard Donnell, director of research at property portal Zoopla. 

Properties currently listed for sale on the site have an unadjusted median asking price 12 per cent higher than a year ago. That does not indicate that every home is deemed to be worth 12 per cent more, but that the market is skewing, with pricier homes coming up for sale in greater numbers than cheaper ones. 

Mortgage lenders have pulled their riskiest products, raised borrowing rates and tightened lending criteria because they “are nervous about what’s coming round the corner”, said Neal Hudson, an independent housing analyst. 

That has squeezed those needing a large loan to buy a home. But anyone with existing housing wealth, parents who will lend to them or substantial savings is relatively unaffected by the credit crunch.

Borrowing costs have increased dramatically on high loan-to-value mortgages but only modestly for those taking out less risky mortgages, according to the Bank of England.

“The young couple working super hard that the government wants to help on to the housing ladder: they are the people getting squeezed at the moment,” said Mr Donnell.

The impact this is having on the market is becoming evident. In every region of the UK, prosperous buyers have accounted for a larger proportion of total sales in the past three months than they have in the five years prior, according to Zoopla and data company Caci.

In the south of England, excluding London, their share of purchases is almost 20 per cent above normal levels. The share sold to the least well-off buyers is down by roughly the same amount.

Today’s market resembles the one that emerged after the financial crisis, a period also marked by recession and lenders pulling higher risk mortgages. “Clearly we’re back into a market like 2010-12 where it’s all about access to cash,” said Mr Hudson.

From 2010, prices in London took off as wealthy buyers concentrated their spending on the city. This year it is more likely to be desirable suburban or rural areas which stand to benefit as lockdown-jaded buyers search for large gardens and spare rooms to turn into home offices. The most marked increase in demand since lockdown ended has been for coastal properties and homes in towns within reach of major cities.

According to Aneisha Beveridge, head of research at Hamptons, the estate agent, today’s buyers are “people who have got a lot of equity built up in a home and are putting lifestyle at the forefront of their decision making, rather than the economic situation”.

That’s borne out by data from Savills, showing that demand for £1m-plus properties is currently more than twice what it was in August last year. Most popular were large homes in southern England, with the central London market lagging behind, said the estate agent.

Rich buyers are also bringing forward moves to take advantage of a stamp duty holiday that was introduced by the government in July and runs until March next year. It could save them up to £15,000.

Fears about a potential shake-up of the capital gains tax regime might also prompt those considering a new property to move sooner rather than later, said Mr Donnell.

Bar chart of Share of total sales by price bracket (%) showing UK home sales are skewing towards pricier properties

There are still first time buyers in the market, but many of those are being supported by their parents or by the government’s Help to Buy equity loan scheme. According to a survey by Legal & General, 23 per cent of all transactions this year will be backed by the “bank of mum and dad”. The insurer found that a quarter of borrowers were more reliant on financial support from family and friends than they were before the pandemic.

By contrast, less well-off buyers have little to exploit. The stamp duty holiday might provide a modest saving to some, but given that first time buyers paying £500,000 or less already received relief, it may just increase competition for a new home.

And the restraints on this segment of the market will probably increase, as mortgage lenders look to reduce their exposure to risk. That would affect “places where unemployment-led recessions [are likely] to hit the hardest, [such as] former industrial parts of the country,” according to Mr Hudson.

As well as leaving many frozen out of the housing market, the lopsided access to housing calls into question the sustainability of the current mini boom.

Wealthier homeowners selling up and moving, or supporting their children’s purchases was “probably enough to sustain the market for six months, but not a year”, cautioned Mr Donnell.

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