Real estate is key to the UK’s recovery from COVID-19

Paresh Raja - Market Financial Solutions
29th March 2021
Paresh Raja 222

For over a year now, the UK has been cycling through different lockdown periods to combat the COVID-19 pandemic. Thankfully, it now looks as though the end of the pandemic could be in sight.

Vaccines are being successfully rolled out across the country and the government has put in place a timetable for the eventual lifting of all social distancing restrictions. Based on the current situation, it is hoped that things will return to relative normality by the end of the summer.

Of course, cautious planning is still warranted. Despite the positive progress that has been made, there is no way we can be certain about the potential challenges that might be around the corner. At the moment, there are concerns Europe might be about to experience a third wave of coronavirus cases. On top of this, the UK’s transition out of lockdown could be delayed if the relaxing of certain restrictions leads to a spike in new infections.

All that being said, however, I believe we should not let the current uncertainty overshadow the positive trends unfolding before us. This includes the positive performance of the real estate market which has been in a bullish mood ever since Chancellor Rishi Sunak first announced the Stamp Duty Land Tax (SDLT) holiday on 8 July 2020.

Since the introduction of this relief, the number of buyers seeking new property investment opportunities has risen considerably. In response to this sudden rise in buyer interest, Market Financial Solutions (MFS) launched a £60 million post-COVID recovery fund. The purpose of this fund was to finance bridging loans for property investors and businesses seeking to complete on residential and commercial property transactions.

The impact of the holiday could be seen in the sudden yearly and monthly increase of average house prices. By the close of 2020, Nationwide and Halifax both recorded over a 5% increase in average house prices in the UK. This was an impressive figure, particularly when we take into account the modest rate of price growth that was on display in the year prior to the pandemic taking hold.

The SDLT holiday proved to be such a success in attracting property investors to the UK real estate market that Chancellor Rishi Sunak announced that the tax relief would be in place until the end of June 2021 – extending the deadline by three months. The move has been welcomed by those involved in the property market.

What’s more, it also shows that the government understands just how important the real estate sector will be in bringing about the post-pandemic recovery of the economy. By encouraging buyer access to new opportunities through reforms like the SDLT holiday, the government is encouraging investment activity which in turn will drive national productivity and ultimately contribute to GDP growth.

Of course, the success of this holiday extension will depend on the ability of property investors to access the finance needed to complete on a transaction. Two months following the initial announcement of the holiday, research by MFS revealed that over half (52%) current homeowners wanted to take advantage of the holiday but were concerned by their ability to get a mortgage. More concerningly, 32% of prospective homebuyers said they have been denied a mortgage since the introduction of the holiday on 8 July.

Since then, mortgage providers have been slowly returning to the market, with 95% LTV products once again on offer. This will be positive news for prospective buyers seeking a loan relevant to their circumstances. However, buyers and the brokers who represent them need to also plan carefully. As I mentioned at the beginning of this article, a sudden increase in COVID-19 cases or delays to the lockdown easing plan could result in lenders once again retreating from the market.

For all of these reasons, it is vitally important for prospective buyers to that ensure they are dealing with lenders with in-house credit lines and a strong track record of deploying loans quickly. By doing the necessary research and uncovering how different lenders have engaged with their clients throughout the pandemic, these buyers will be better positioned to take advantage of the SDLT holiday.

On that basis, it looks as though the UK property market is in for an exciting summer.

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