In recent weeks, UK lockdown restrictions have started to ease, allowing renters and buyers to move, and Brits to finally consider a summer getaway. The coronavirus pandemic has touched almost every part of “normal” day-to-day lives, not least, home life, with the majority of people having spent the past few months in lockdown. Whilst the 2019 general election and Brexit brought much-needed assurances to real estate investors, the uncertainty shrouding COVID-19 has the potential to disrupt UK housing market trends for the long term. Now, Rishi Sunak’s recent announcement of emergency economic measures has demonstrated a bid from the UK government to resuscitate the British economy and property market. But what does this all mean for 2020’s UK homeowners and buyers?
2020 Trends from the General Election to Today
Boris Johnson’s decisive political win in December 2019 ended years of political and economic instability; with him in power, real estate investors could trust that the new PM would “get Brexit done”. This, against the backdrop of robust labour market conditions and low borrowing costs, meant that, in the months before COVID-19 reached British shores, activity and prices in the housing market began to climb, particularly in London.
And then COVID-19 hit, bringing this exciting buzz to an abrupt halt. Estate agency Knight Frank reported that buyers decreased by 60%, new properties by 90% and offers by 80%. Activity picked up in May, when the government allowed people to move home as long as sensible precautions were taken. Once again, the market gained momentum, leaving some agents hopeful for a summer surge.
Now, with the UK economy facing a recession, mass unemployment, wage cuts, business failures and job uncertainty, house prices are set to fall by a potential 4-7% and transactions may decrease by around 40%. However, this may now change considerably if property buyers arm themselves with market savvy and take advantage of Sunak’s economic measures.
Escape to the country
The way properties are valued may change fundamentally. The importance placed on “home” is stronger than ever post-COVID. With homeworking trends set to rise, many will stop prioritising transport links and distance to city centers, opting out of smaller, urban pads and into larger properties in more remote areas. Rightmove, for example, reported a growth in the number of buyers and renters looking for homes further afield where outdoor space and an office is easier to come by. Whilst a mass exodus from the UK’s cities seems unlikely, we may see a shift both over the short and long term, which is set to increase the value of countryside abodes.
Those who want to hold onto a city dig and consider investing in a rural holiday home may decide to take advantage of the recently announced stamp duty holiday, since it is on second homes or higher value properties where this tax is highest. There are significant tax advantages on short let properties such as holiday lets, and nightly rents are often much higher. With the prospect of enforced quarantine making a “stayvacation” all the more attractive, this could be a profitable time for UK holiday let owners.
And yet holiday let owners have been the source of much controversy during the health crisis, starting with outrage at those owners who went to their holiday home during lockdown, risking spreading the virus to less equipped areas of the country. Then it was revealed that many holiday rental owners were claiming emergency small business grants worth £10,000, even though many pay no council tax or business rates. Some owners found that cancelled bookings were not covered by their business interruption insurance policy and some have refused to refund guests who could not come due to lockdown.
As a result, some short-let property owners sought legal advice on the possibility of switching to the longer term letting market to avoid missed opportunities to have their properties occupied and to reduce the time spent on managing this kind of business.
Despite this unsettled period, investing in a tangible asset such as property during this time can pay in dividends. However, astute buyers should take advice from both lawyers and property specialists to make sure that they truly are on the money with such a long term, sizable investment.
Rishi Sunak’s Measures – a Break Down:
New government measures are being taken to reboot the economy. As part of these measures Stamp Duty Land Tax has been drastically reduced on the first £500,000 of a property’s value for any deal completed by 31 March 2021.
This means that when buying a main home worth up to £500,000, no Stamp Duty Land Tax now has to be paid.
Up until this Tuesday, a property over £125,000, bought by a buyer with at least one other property, incurred
- a 2% tax on the portion of the price from £125,001 to £250,000; and
- a 5% tax on any portion between £250,000 and £500,000.
So a £499,000 purchase would have incurred tax of at least £14,950.
Buyers purchasing an additional house or flat (including as a buy to let), have also had their tax reduced by these amounts. However, a 3% surcharge will remain payable on purchases of additional properties. So for such buyers, a £499,000 purchase would now incur £14,970 tax instead of £29,920 tax.
This discount lasts until April 2021, when a new 2% tax on buyers not resident in the UK is scheduled to be introduced.
Article written by: Syvanne Aloni