The unprecedented financial “bubble” in the property market saw its boom in the second half of 2020 and most of 2021. However, even bubbles do burst at some time. August 2021 saw a decline in UK house prices and a reduction in the demand for bigger homes.
Nevertheless, as real estate agents including the letting agents in Buckingham will agree, there is no need to panic as the housing market still remains strong.
We will view the reasons for this sudden fall in prices after the euphoric high in property sales recently.
One of the most obvious is the end of the Stamp Duty Land Tax holiday which closes at the end of September 2021. The tax savings caused a peak in the property market, which is slowly fading but will not be extinguished.
There is still a tax benefit till the end of September 2021 in England for properties priced up to GBP 250,000. This will revert to the normal tax-free allowance of GBP 125,000 with effect from 01 October 2021.
However, people are now nervous about meeting the deadline and losing out on the deal. This is especially so with the high buildup of applications yet to be processed. It has resulted in a decline in the clamour for property purchases. When the demand drops, so do the prices.
When the first lockdown was lifted last year, the housing market saw unexpected price inflation due to the “race for space”. This has slowed down with the SDLT benefits coming to an end, which is leading to a reduction in prices.
Prices decrease in top-notch areas:
As the Director of one of the most well-known property websites stated, “Average prices have only fallen in the upper-end sector.” The demand for larger properties in these areas has fallen as a result of the SDLT holiday coming to an end. Properties in the suburbs and rural areas are still very popular and are continuing to sell at good prices.
Normally, there is a slackening in the property market during the summer holidays and this perhaps has also led to a decrease in prices. It is also likely that some savvy sellers, particularly with larger houses and who can see the demand for those dwindling, have offered temptingly lower prices during the summer season.
Demand lessens for bigger homes:
- As life returns to near normal with the lockdowns lifted and the vaccination programme running successfully, offices and other public facilities like shops, restaurants, hotels, entertainment sectors will return to routine. It is likely that employees will return to working in offices or may continue to work online part-time, from home. The uncertainty of office-home working still lies in the balance. People who may have to return to working in offices and other employment venues will require a daily commute and will need easily accessible transport facilities. This may make them think twice about buying bigger properties away from city centres.
- With the furlough scheme ending on September 30, 2021, the income of many people will be affected. Until employment is secure and a weekly income ensured, not many people are likely to look for larger, much more expensive homes.
Income vs price:
Historically, a reduction in income has led to a reduction in property prices. With the likely unemployment of many after the furlough scheme terminates, the real income will reduce as well, leading to a curb on prospective property buyers. This fall in demand will lead to a fall in prices, too.
Risk of external shocks:
The property market offers to return as well as risk. Due to the high price rise in the property over the last year, the market is more exposed to external shocks to the economy from the impact of exogenous factors.
Housing makes up for a high percentage of a person’s wealth and with the rise in property prices, it has become even higher. Should a financial crisis occur caused by an external shock, the market is likely to slow down. Some far-sighted property investors will think twice about buying more property. This will reduce the demand which, in turn, will lower the prices.
While there are factors which show that house prices have decreased and that the demand for larger homes has dropped, it is evident that the property market is still buoyant. With the price inflation over the last year, any drop in prices will still show a higher margin than pre-pandemic times.
While the trend for larger, 4 bedroom+ homes may dwindle, independent accommodation in the suburbs and rural areas still remains popular and the prices for those properties are still high. No one can correctly predict the future, and house prices may fall and later stabilise or even rise. However, overall, the housing market looks as if it will wade through any storm and emerge as successful as it always has been!