Housing transactions are declining for the first time since April as the end of the stamp duty holiday approaches
UK property transactions gained momentum for the first time in nine months in January, in the latest sign that the pandemic-induced market boom is coming to an end.
There were 98,830 housing transactions last month, according to HMRC’s preliminary estimate of residential transactions in the UK – 25.2 percent less than in December 2020.
The housing market usually declines in January due to the delayed effect of surveyors, hauliers and other professionals involved in housing transactions who do not want to work during the Christmas season.
Home sales: there were 25% fewer transactions in January than in December
But even on a seasonally adjusted basis, HMRC data shows 121,640 housing transactions for January – a 2.4 percent drop from December and the first time this figure had dropped since April 2020.
This was in stark contrast to the latest update, which found 129,400 homes sold on the same basis in December – 13 percent more than November 2020.
Although it fell month after month, activity in January was still much higher than before the pandemic. It was the busiest January for the housing market since the financial crisis.
Transactions were up 24.1 percent compared to January 2020 on a seasonally adjusted basis, thanks to lockdown fueling people’s desire to move and the positive impact the stamp duty holiday has had on the market so far.
The housing market has cooled somewhat as the government will waive the unpopular stamp tax on any portion of a property transaction below £ 500,000 on March 31.
Some predict that the tax holiday will be extended by six weeks in the budget next week, but nothing has been confirmed.
Off the boil: Transactions start to decline after a period of sustained growth
‘Mini boom’: Housing transactions had been on the rise since the early days of the pandemic
A dash for detached houses and the hunt for more space have helped the UK average house price to rise £ 20,000 in 2020, according to data from the Office for National Statistics released last week.
House prices rose 8.5 percent to a record high of £ 252,000.
However, the Royal Institute of Chartered Surveyors has warned that the market has started 2021 on a ‘weaker basis’, with sales, offers and interest from potential buyers diminishing.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “ Always sell a January nosedive because most of the professionals involved don’t feel like spending their holidays completing searches and writing surveys.
‘But the fact that seasonally adjusted sales are falling for the first time since April is a sign of problems in the market.
‘When the stamp duty holiday is over, we can still pause for a while. The money involved isn’t always hugely important given the immense cost of a move, but psychologically the tax break was enough to jump-start the market and could be enough to bring it to a halt, in the spring months in which we usually peak in real estate sales. ‘
Anna Clare Harper, CEO of asset management company SPI Capital, also said the transactions are likely to decline further once the stamp duty holiday is over.
There have been four main drivers of transactions since the strictest lockdown conditions were lifted in 2020: the temporary cut in stamp duty and the cheap debt due to very low interest rates, which give buyers a ‘discount’; letting go of pent-up supply and demand and the desire to improve the environment of existing home owners; and the “flight to safety,” because in times of uncertainty, people want to put their money into a stable asset with low volatility, “she said.
‘Looking to the future, if we assume that the temporary cut in stamp duty ends, we will likely see a slowdown in transactions. Challenging economic conditions make potential home buyers less willing and able to buy. ‘
Real estate agents, however, continued to give a positive assessment of the market, thanks to the massive increase in the number of transactions year-on-year and the announcement of the government’s roadmap to end the lockdown.
Nick Barnes, head of research at Chestertons, added: “Despite lockdown restrictions, there are still plenty of households willing to move, which is further boosted by the roll-out of the vaccine.
“Boris Johnson’s announcement of the slow relaxation of lockdown restrictions could spark a new spark in the housing market as people are eager to return to some form of normalcy.”
Jonathan Hopper, chief executive of purchase brokerage Garrington Property Finders, said the positive effect of the stamp duty holiday would continue into March as buyers headed for a ‘sprint finish’.
“Buyers are rushing to wrap up in the last few weeks before Stamp Duty rates hike in late March,” he said.
The February and March data is likely to provide a sprint finish of trades, so the real test of the market’s momentum will begin in April.
“On the front line, we see robust buyer demand, and it is clear that tens of thousands of prospective buyers remain determined and ready to move.
With the Prime Minister setting the timetable for lifting the lockdown restrictions, the coming months could be seen as buyer demand translate into further sales gains – possibly even at last year’s pace.
Some of the links in this article may be affiliate links. If you click on it, we can earn a small commission. That helps us fund This Is Money and use it for free. We do not write articles to promote products. We do not allow commercial relationships to affect our editorial independence.