Important information: the value of investments and the income from them can go down as well as up, so you may get back less than you invest.
An idyllic country retreat away from the city used to be confined to the post-retirement fantasies of busy city commuters - now, after new working habits have emerged and households have accrued lockdown savings, people are seizing the opportunity sooner than they’d anticipated.
A Zoopla report showed how its sales are 76% higher than the five-year average, while in the last 90 days it has taken on average 27 days to sell a property, compared with 39 days over the same period in 2019. Rightmove, meanwhile, found that agreed sales in August were 20% higher than the previous highest month on record, set in March 2017.
These figures can be explained in part by the temporary cut to stamp duty for properties up to £500,000 announced by Rishi Sunak during his Summer financial statement in July. However, the cut is due to last only until 31 March 2021, provoking concerns that the household boom may be built on pillars of sand.
But there is more at play here than just the stamp duty holiday. Rightmove explained that sales have diverged across different sectors of the market. Sales among first-time buyers - the intended beneficiaries of the stamp duty holiday - have only increased by 29%, while sales among so-called ‘second-steppers’ have risen by 38% and by 59% for ‘top of the ladder homes’. Zoopla explained that the profile of its buyers has shifted to an ‘increase in wealthier demographics looking to move, which in turn is pushing the average asking price of a home for sale on Zoopla up 8%’.
Demand has been driven largely by wealthy households which have accumulated savings and reflected on their lifestyles over lockdown - a Nationwide survey conducted back in May found that around 15% of people surveyed were considering moving as a result of life in lockdown.
Now that pent-up demand is being released, property development companies like Barratt and Persimmon are struggling to keep up. Both lost out on around two months of work over the strictest lockdown period, which has resulted in an expected 20% decrease in available properties over 2020.
The government has already extended its Help to Buy scheme until the end of March next year. The programme, previously due to end in December, helps property companies by offering buyers the chance to lay down a deposit on new-builds from as little as 5% of the purchase price.
Extending the scheme should help, but it does portray an underlying anxiety that residential property is riding something of a temporary wave, which is likely to recede as we enter the new year.
Coinciding with the Help to Buy scheme’s new proposed end-date is the cessation of the Stamp Duty holiday. All this is to come after the government draws its furlough scheme to a close in October and the full effects of recession on unemployment are likely to become clear.
So, what does all this mean for investors? There are several factors at play here - some we can predict, like the end of government incentives, and some we can’t, like the effects of the ending the furlough scheme, and how long the appeal of an escape to the country will last.
Investors may be encouraged by the fact that, so far, the uptick in housing completions has been driven primarily by wealthy households looking for large houses in the country - a market which is unlikely to be overly influenced by government schemes which are intended primarily to help out first-time buyers.
The longevity of this market will depend largely on whether companies will continue to encourage remote working and cement broader shifts in our working habits. Earlier this week, the legal firm Linklaters announced that it all its 5,300 staff will have the opportunity to work from home 50% of the time going forward. Investors may well wonder whether other city firms will make similar announcements over the coming weeks, and perhaps perpetuate their workforces’ countryside exodus. If so, the UK’s housebuilders have yet more planning to do this year.
Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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