UK house prices have hit a record high since the lifting of lockdown, after the fastest monthly growth in property values in August since 2004, fuelled by the release of pent-up demand and the government’s stamp duty cut.
Despite Britain plunging into the deepest recession in modern history in the second quarter, estate agents report a surge in interest from those with the financial security to move, and from those whose priorities have been changed by Covid-19. There are, however, winners and losers in this rapidly moving market, as Covid-19 creates a period of boom and bust.
First-time buyers have suffered a double whammy after the chancellor, Rishi Sunak, launched a stamp duty holiday until March next year. Fuelling a boom in prices that pushes property values further out of reach for those starting out, the change has also removed an advantage first-timers held over other house hunters. Many young buyers outside London were not paying this tax to get on the property ladder, thanks to stamp duty relief for first-time buyers. Now they face tough competition from movers and second-property buyers aiming to cash in on the stamp duty holiday.
Britain’s high street banks have also stopped offering high loan-to-value mortgages in order to protect themselves against any sharp drop in house prices, and this disproportionately hits first-time buyers, who usually have smaller deposits.
But even if the Covid recession triggers a plunge in prices, there is unlikely to be a silver lining for first-time buyers, according to the Resolution Foundation thinktank.
While prices have boomed in recent months, the Office for Budget Responsibility (OBR), the government’s economics forecaster, estimates that property values could fall by 21% by the third quarter of 2021 as the pandemic drives up unemployment and forces people to sell their homes or put off new purchases. But weak earnings growth for young adults as a result of the downturn will prevent them taking advantage of this.
With city centres still largely empty, owners of commercial property are coming under mounting pressure. Retailers, coffee chains and restaurants are closing hundreds of outlets and cutting thousands of jobs, as high streets adapt to fewer people travelling into city centres to work.
Despite the government encouraging a wider return to offices to protect businesses dependent on city workers, footfall in central London remains more than two-thirds below usual levels as firms delay the return of staff to densely packed office districts.
Early on in the pandemic, the chief executives of Barclays bank and advertising giant WPP predicted an end to crowded city centre offices and rush hours, and flexible working becoming the norm: “I think the notion of putting 7,000 people in a building may be a thing of the past,” Barclays’ chief executive, Jes Staley, said at the time.