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The 2020 Housing Market Boom – Who’s Driving It And Who’s Benefitting?

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Government support has been keeping the economy afloat as the pandemic and its repercussions continue to take a toll on different sectors.  

For the housing market, this support took the form of a temporary stamp duty tax holiday. This measure was announced on the 8th of July 2020 and is set to expire on the 31st of March 2021. A person pays Stamp Duty Land Tax when they buy a property or land in England. As such, this tax holiday offers buyers a chance to save up to £15,000 in tax payments when purchasing a property; and with the pandemic inducing consumers to rethink their lifestyle and living choices, buyers in the second half of 2020 seemed adamant to finalise deals sooner rather than later.

This has led to an influx of home loans applications from such buyers making the main benefactors of this increased demand mortgage lenders such as Lloyds Banking Group. This increased demand has consequently caused house prices to soar to records highs.  Lloyds’ profits exceeded expectations in Q3 of 2020 and Q4 is expected to mirror such profits as demand retains its momentum before the March 31st deadline. 

On the other hand, some mortgage lenders have struggled to cope with the surge in demand, taking action to steer consumers away from their mortgage products. Such actions include increasing interest rates, toughening credit score criteria and could extend to completely withdrawing a certain range of mortgage products from the market. 

Important things to note:

  • Pent up savings over consecutive lockdowns has contributed to this increased demand. As this may be true for a small segment of consumers, namely, the wealthy, who may feel able to take advantage of the tax holiday, it is not the case for the majority of consumers in the market. 
  • With unemployment at a high and continuous uncertainty looming, a large portion of the public is not in a position to make such a major investment.
  • Furthermore, as mentioned above, once lenders struggle to keep up with demand, actions such as toughening credit scores and withdrawing the riskiest mortgage products have made it even harder for those needing a large loan to buy a home to access the market.    

As only a small segment of consumers seems to be driving this boom in the housing market, such a boom could be described as unsustainable. As such, after the expiration of the tax holiday in March 2021, it may be constructive for the government to introduce measures that better cater to the public at large or else house prices may come tumbling down. 

Indeed, the Help to Buy scheme and stamp duty tax relief for first time buyers have been deployed to assist buyers well before the pandemic. And so, it could be that the combination of such measures with other pandemic-induced government support schemes, including the furlough scheme and cheap cost of borrowing, along with the greater consumer confidence accompanied by the roll-out of vaccines, may leave the housing market in good stead come March 2021. 

As such maybe the fact that a small segment of the market is driving the boom and sustaining the housing market is alright for the time being and maybe it did what it was intended to do. It’s later on when the general public retrieves confidence in spending that the government should ensure the market still is accessible to them.

I would also recommend this article if you’d like to understand more about why the housing market is important to the economy https://www.bankofengland.co.uk/knowledgebank/how-does-the-housing-market-affect-the-economy#:~:text=Back%20to%20top-,Why%20is%20the%20housing%20market%20important%20to%20the%20economy%3F,off%20and%20feel%20more%20confident.&text=When%20house%20prices%20go%20down,less%20than%20their%20outstanding%20mortgage.

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