A three-month extension to the stamp duty holiday should prevent sales falling in Q2 even if it does not incentivise much new activity given ongoing delays in conveyancing. And the timeliest data suggests that buyer demand may prove resilient when the tax break does eventually end, presenting an upside risk to our 2021 forecasts.
- A three-month extension to the stamp duty holiday should prevent sales falling in Q2 even if it does not incentivise much new activity given ongoing delays in conveyancing. And the timeliest data suggests that buyer demand may prove resilient when the tax break does eventually end, presenting an upside risk to our 2021 forecasts.
- Very high home sales volumes have led to delays in conveyancing. Multiple sources report that the average time between agreeing a sale and exchanging has risen from three months to four. That tallies with the fact mortgage approvals were up 40% y/y across the latest six months of data, while transactions were only up by 15% y/y, which suggests there is a backlog of around 95,000 households who have had had their mortgage approved but are waiting to transact. (See Chart 1.)
- The Times reports today that a three-month extension to the stamp duty holiday will be announced in the Budget next week. This would avoid the expected disruption to the market from buyers who are relying on stamp duty savings pulling out. That should prevent a scramble for replacement buyers that could put some downward pressure on prices. But given the current four-month gap between an offer being accepted and exchange, sales agreed on Budget day (March 3rd) would still be unlikely to exchange in time to benefit. So the extension shouldn’t incentivise much new activity, although some buyers may still try and accelerate their search on the off chance they get lucky.
- Even so, there is evidence that buyer demand has been holding up better than expected. Searches for property portals have remained well above pre-COVID-19 levels in February, suggesting that the slump in transactions had the holiday ended as planned may have been smaller than we anticipated. (See Chart 2.)
- Admittedly, this is just one data point. And there is always some concern that browsing online doesn’t translate into sales. But the relationship has been solid over the last year, and Rightmove reported that the number of enquiries sent to estate agents was up 18% y/y and agreed sales were up by 7% y/y in February.
- Nonetheless, the end of the tax cut will still be a headwind to price growth. The tax cut appears to have been fully capitalised into prices, raising them by 1.5% on average. So reinstating it should cause house price growth to ease at least as much. Indeed, house price inflation has cooled from 7.3% y/y in December to 6.4% y/y in January on the Nationwide index and we expect a further slowdown.
- It’s also important to remember we are still only seeing the impact of the “haves” rather that the “have nots” on the housing market. As we wrote yesterday, policy support is probably still delaying an increase in mortgage arrears and repossessions, but this will happen later in 2021. (See here.)
- All told, it appears that high household saving and increased demand for space given the expected shift to more remote working may offset some of the drag from the delayed labour market impact. If the data continues in the same vein, we will revise up our transactions and prices forecast for 2021.
Chart 1: Mortgage Approvals & Transactions
Chart 2: Google Searches for Property Portals & RICS Newly Agreed Sales Balance
Sources: Refinitiv, Capital Economics
Source: Google, RICS, Capital Economics
Andrew Wishart, Property Economist, +44 (0)7427 682 411, firstname.lastname@example.org