How has UK housing boomed despite two periods of lockdown and will it continue?

Markets and industries worldwide have seen drops in growth and activity in 2020 with the effects of the pandemic sending shockwaves through the global economy. The UK has experienced a 6-month GDP slump until the recent rebounding of growth rates in September. However, despite this fall in national output, the UK’s housing market has remained strong, with a boom in activity alongside a general surge in house prices; this is clearly illustrated by the fact that the cost of a typical UK home has risen above £250,000 for the first time.

This price rise can be explained by several key factors.

As a result of the national lockdown, imposed in March, there has been pent-up demand for both the purchase and sales of houses. Following the easing of pandemic restrictions, property sales have skyrocketed. However, the biggest contributing factor to this boom has been the government's temporary stamp duty suspension. This, paired with the low-interest rate, set by the MPC to encourage consumption, has meant that even ‘would-be cash’ buyers are looking to take out mortgages; this is shown by the fall in mortgage-free buyers on properties over £1 million, dropping from 33% to 20%.

However, it is important to consider the fact that these figures do not provide a complete picture of the British housing market. Since lenders are now restricting higher-risk mortgages, the market is now being driven by buyers with greater equity. As a result, purchasing a house for the first time remains challenging, despite a rise in market activity.

The reduction in low-deposit mortgage lending has led to a decline in the number of first-time buyers, placing further pressure on rental property demand. This has caused an increase in tenant demand which has risen by 20% from September 2019 to 2020.

With generally more houses being exchanged and prices rising, can we expect the UK's housing market to continue to perform into the near future?

The Centre for Economics and Business Research argue that we can’t, predicting nearly a 14% fall in house prices next year. The biggest indicator of this slowdown is unemployment. Despite an extension of the furlough scheme until March, Britain's rate of unemployment has risen from 4.5% to 4.8% in the last three months. When the government ceases this job retention programme, there could be a landslide of job losses. Higher redundancies will slow the demand for housing, placing an inevitable downward pressure on prices.

Who will this seemingly certain change in momentum of housing prices favour?

Sadly, it seems that the combination of job losses and rent increases means that young potential house-owners will still fall short. The fall in employment will only deepen the struggle to climb the property ladder. Larger homes are the most in-demand, seeing the largest price growth nationwide and luxury home sales up by 7%. This will not help those seeking cheaper lodging. Once the stamp duty tax break ends, the opportunity to capitalise on home purchase savings will be over and the problems first-time buyers encounter will persist.

It is important, for both the UK economy and the housing market, that exchanges continue into the months leading into March when the government's stabilising intervention policies conclude.

The benefits of stamp-duty relaxation, and the low-interest-rate environment, outweigh the price rises. Knight Frank's prediction of an overall annual increase in house prices, between 0% and 5%, highlights the necessity to capitalise on the strong position of UK housing before the economy endures the severe effects of coronavirus on employment.