The property market during COVID-19

Due to the pandemic, the property market has been in a state of uncertainty over the last 12 months. Yet, despite lockdown measures being in place, the property market has continued to function (albeit under unorthodox conditions).

In 2020, the economy shrank by a considerable amount, causing a recession of such gravity that the UK was faced with a situation that they were unprepared for. However, the good news is that the UK is projected to recover economically by mid-2022 and that the property market is already showing signs of taking off and proving to be successful this year. At the end of January 2020, we also had the additional advantage of leaving the EU, with the Brexit deal having allowed more certainty in the property market.

Moving forward, the Government’s introduction and extension of the stamp duty holiday and the reintroduction of the 95% mortgage scheme is set to aid significantly in boosting activity in the property market, painting a bright post-pandemic future for investors.

What is the current state of the property market?

“The fiscal stimulus package agreed by Treasury over the last year had been a substantial investment in the UK economy – and it has kept the construction sector alive. We’re seeing no slowdown in planning applications whatsoever – especially in our market hotspots. Our clients are still seeking housing consents, while the market is buoyed by the stamp duty holiday. There is still considerable value to be had in sites suitable for residential planning permission.” Ben Norton, Planning Consultant, Norton Taylor Nunn.

The furlough scheme

The furlough scheme, first introduced in 2020, allows employees to remain paid for work (despite being unable to because of lockdown restrictions) with around 41% of UK employers reported to be using the furlough scheme in January 2021.

Prior to the announcement of the 2021 Budget, most mortgage providers were not considering prospective buyers who were living on a furloughed income, or at the very least would only consider people on furlough that had proof of a return-to-work date (signed within the last three months of being issued). However, the government is now giving an incentive for mortgage providers by backing most 95% mortgages for clients, therefore the policy on furloughed employees is subject to change (provided they can pass eligibility and affordability checks).

Stamp duty holiday extension

The extension of stamp duty allows investors to establish and expand their property portfolios, as well as providing them with an opportunity to increase their savings and invest any excess capital back into their properties. Also, an added benefit to the stamp duty holiday extension is that more people will be looking to buy properties, increasing the competitiveness of the property market, which is an opportunity for investors to increase their income.

The 95% mortgage scheme

The 95% scheme is a mortgage plan that allows prospective buyers to purchase their chosen property at 95% of the price and the remaining 5% is used as a deposit. Chancellor Rishi Sunak reintroduced this scheme in the 2021 Budget (set to be put in motion in April) because it will aid those who have been put onto furlough, lost their employment entirely or have a low income due to the effects of the coronavirus pandemic.

Martin Bright, Director of Fees Free Mortgages, has already seen more activity after the budget 2021 announcement, “We’re expecting an increase in activity within the housing market. Our mortgage advisors have already seen a spike in appointments since the announcement of the return of 95% mortgages. There are a lot of first-time buyers keen to get on the housing ladder.”

Although this scheme will help first-time buyers get their foot on the property ladder, it isn’t a permanent solution to the current imbalance of supply and demand in the UK market: giving investors a “best of both worlds” opportunity in which the current market is driven forward by increased purchasing activity by first-time and low-income buyers, meaning demand remains high, and supply remains limited. There is significant potential here to capitalise on, whether through land development, fixed returns investments or portfolio establishment/expansion.

What’s to be expected in the near future?

The extension of the furlough scheme

It can be argued that the long-term effects of the pandemic are yet to be realised, but organisations like MT Finance are optimistic that, with vaccines being speedily provided, that the prices on the property market should be largely unaffected. OBR has predicted that the economical recovery of the UK could be in full-swing by mid-2022, with an economical growth of at least 4%.

It was originally speculated that 2.6 million people would be unemployed following the termination of the furlough scheme in March but, since it has been extended, the government are hoping that that the risk of a rapid increase in unemployment will be reduced. The extension also provides the opportunity for workers to maintain the security of their jobs, restrict the damage done by the recession and allow furloughed employees to continue paying rent and maintaining any financial obligations (such as water and electricity bills).

For investors, this means that not only will existing renters be able to keep up with their payments but produces more opportunities for people to afford to buy new properties: it was always thought that, no matter what happened with the pandemic, the demand for new housing would never diminish and the recent extensions now support that ideology going forward.

Aspects of the property market to consider

There are still a few things that need to be taken into consideration. Firstly, supply and affordability: the newer generation (mainly Millennials) have started to transition to becoming interested and invested in the property market, which will be made easier with the government’s Help to Buy scheme (valid until 2023) and the new 95% mortgage scheme offered by most mortgage lenders. With more affordable options, the property market only stands to improve and grow over the next coming years.

Council tax rise

With national restrictions looking to be removed in the summer, there will be a rise in council tax, as the government has allowed councils throughout England to push it up to a maximum of 5% (resulting in household bills that could add up to at least £100 per property). However, this will not affect property investors as much who may be exempt (Capital Gains Tax) and may in fact be eligible for the ‘Rent a Room’ scheme if they are renting out their property to other people, which can equate to £7500 in terms of tax relief.

The spikes in council tax will be to pay back what has been borrowed in order to aid the British public during the three, national lockdowns that they’ve already experienced, as well as other emergency expenditure: on top of property prices and mortgaging, a significant amount of people, stand to suffer financially.

However, many locations over the UK (including places such as East Suffolk) have pledged to support local residents financially by delaying an increase of council tax and, in some cases, the price of property bands will remain the same as last year. A complete freeze on council tax isn’t feasible in other parts of the country but they have focused on reducing the costs as much as possible, with general support offered to those struggling financially.

Why should you invest in property in 2021?

In short, the measures recently introduced and extended by the government are set to encourage significant market activity, allowing a large number of buyers previously excluded by deposit requirements and growing house prices to get onto the property ladder, and offering savings to investors, meaning now is an excellent time to get involved.

The stamp duty holiday provides investors with the opportunity to establish/expand their property portfolio whilst making significant savings on upfront costs.

The 95% scheme, which allows a wider range of prospective buyers to have better access to affordable mortgages, will push purchasing activity higher, adding further value to properties, and keeping the market afloat. The furlough scheme also ensures rent can be paid and provides the opportunity to save for a deposit, making it feasible for a larger percentage of the population to have access to the property market, whilst maintaining demand in the buy-to-let market in the meantime.

The significance of location

Knight Frank has suggested that the pandemic has caused many prospective buyers to reconsider their criteria when it comes to purchasing properties, with a considerable number of people looking to “escape the country” (according to registration figures collected at the end of 2020). Some buyers will have no need for transport links to cities/urbanised regions, criteria of purchasing a second home, people looking for retirement locations and those who simply are moving within their rural environment that are looking to upgrade, say, from renting to buying. As a result of this, investors looking to source locations and expand their portfolios might take rural areas into consideration.

This shift does not rule out the value of urban investment. Those looking to urban areas should take into consideration that properties in the cities and towns often prove to be highly profitable, depending on how populated the area is: larger populations tend to have bigger job markets and local opportunities, a wider range of transport options (which both saves money and acts as a more eco-friendly alternative), a better quality of properties and easy access to popular amenities such as supermarkets.

Despite these predictions, for many, including those affected by the pandemic and first-time buyers, factoring in location seems to have lost its relevance in 2021, as people are more concerned with getting on the property ladder and/or finding their forever homes than temporary lodgings. So, whether it’s rural or urban, a property will essentially sell itself on the current property market, supporting the idea that the market is set to boom this year.

Best Property Investments Property Investment Services

With the property market firmly set to pick up this year, investors stand to thrive in making quick returns and profiting from a steady income. At Best Property Investments, we can help you get started in the world of property investment or otherwise improve on what you already know.

Our property investment services include property portfolio acquisition, property sourcing, fixed returns, land development and property portfolio building. Best Property Investments is a fully accredited company, with due diligence and flexibility at the heart of everything we do: whether you’re looking to expand your portfolio of properties or acquire and develop land into a financially successful asset, we will tailor our services to your needs as an investor and work with you to produce the best outcome possible.