Housing market fundamentally sound but stamp duty boost needed – Lewis

Confidence is slowly returning as buyers and sellers get on with deals that have been put on hold firstly because of Brexit, then while they waited for the general election outcome, and finally because of the pandemic.

Now, however, there is a new threat – historic statistics.

House price volatility

As the Office for National Statistics predicted when it temporarily suspended its UK House Price Index from April until further notice, Covid-19 would greatly reduce the volume of housing transactions taking place.

This makes it difficult to produce a measure of house prices that, as the ONS said, “would be representative of any true transaction activity within the housing market”.

Indeed, Nationwide Building Society’s May report made for particularly grim reading, with a 1.7 per cent fall from the previous month, the largest monthly fall in house prices in 11 years.

Back in 2009, we had a financial crisis on our hands; now we do not. Banks have plenty of liquidity and are eager to lend.

Interest rates are at all-time low and agents are reporting a positive uptick in applicants registering, which are all positive signs.

With the full impact of lockdown measures being felt during the period covered by Nationwide’s report, it’s not surprising to see artificial numbers. It is not a fair reflection of the market or sentiment but purely a result of necessary measures taken by the government to deal with the pandemic.

Halifax’s take on May’s data was more positive, with the average house price falling for the third month in a row, a 0.2 per cent month-on-month decline in values.

Indeed the fall was more modest than in April, which saw a 0.6 per cent drop, pointing to a robust property market notwithstanding unprecedented conditions which forced it to grind to a virtual halt in May.

Fundamentals are there

Of course, if you put these reports into context, we get a truer picture.

Bank of England data reveals a great first quarter with confidence in the lending market, more mortgages and higher LTVs being offered by banks, along with cheaper rates.

This was all set to be the trend for the year ahead, before the pandemic struck.

Ultimately, it shows that the fundamentals are there. They haven’t gone away – lenders are still keen to lend.

The easing of lockdown conditions is seeing an uptick in activity and transactions, and indeed average values as we move into the summer months, although it’s too early to see these reflected in the official data.

Nationwide reports that one in eight people put off moving because of lockdown but the majority saw the current situation as a temporary pause with would-be buyers planning to wait six months on average before looking to enter the market.

Indeed, MT Finance’s latest Broker Sentiment Survey points to a relatively optimistic outlook with 40 per cent of brokers predicting that it will take six to nine months for the market to fully recover from lockdown.

Once lockdown is fully over, would-be buyers should regain their confidence to move.

The government has done well supporting borrowers with its mortgage payment holiday programme, which has subsequently been extended.

It has provided support for households and jobs on a scale never before seen.

In order to ensure all this good work is not undone, the next step is further stimulus in the form of a reduction in stamp duty or even its removal for several months.