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What impact will lockdown have on the housing market?

6 January 2021

Karen Noye, mortgage expert at Quilter comments on the impact of the third England-wide lockdown on the housing market.

Many will have had a sense of déjà vu when watching yet another Prime Ministerial address to the nation announcing another England-wide lockdown for at least the next seven weeks.

Once again, vast swathes of the economy are under lockdown orders and will find the next few months extremely challenging, not least the housing market.

Back in March of last year, the ‘stay at home’ orders were accompanied by a reduction in the rates of stamp duty paid on residential properties until 31 March 2021, and this unlocked the housing market and provided a much needed boost to property sales during an extremely difficult time.

Recent figures from the Bank of England show that mortgage approvals rose to their highest level in 13 years, with net borrowing hitting £5.7 billion in November 2020. It is clear that the housing market has been burning bright thanks to the fuel of the stamp duty cut, but the blaze will likely be extinguished without any further government support.

Given the amount of time it takes to offer, exchange and complete, in reality the 31 March 2021 deadline for the stamp duty cut has already expired, so the housing market once again finds its self in a precarious position once the incentive to move and benefit from the stamp duty cut ends.

The freeze in the housing market will be compounded by the dire economic environment expected over the next few months with the OBR – the government’s fiscal watchdog – warning that Covid-induced unemployment will peak at 7.5% in the second quarter of 2021, which will inevitably hit mortgage applications.

The stamp duty cut is an imperfect solution. There are valid concerns that it has inflated property prices and has done little to help, and has even hindered, first time buyers from getting on the property ladder. But it should be seen as a sticking plaster to patch up the housing market through the difficult first half of the year before the economic recovery can begin.

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