Urgent government stimulus required to reignite housing market
The UK government’s response to the Covid-19 pandemic has utterly transformed the current economic and housing market landscape. Given the predicted economic contraction we forecast that the number of home sales in 2020 will decline by 526,000, a fall of 38% on 2019 transaction levels.
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This decrease in activity will be multiplied across the economy. We estimate that there will be a loss of £7.9bn in DIY and renovation spend and £395 million on removals companies. These are just two items and there will be a wider economic impact, including the loss of employment and general mobility. This drop in economic activity will have a huge impact on the exchequer with the loss of £4.4bn in stamp duty accompanied by a decline of at least £1.6bn in VAT and significant declines in personal and business tax revenue.
In addition, fewer house purchases will lead to a sharp decline in mortgage activity. Simon Gammon, managing partner, Knight Frank Finance explains that, as a result of the lockdown, lenders are likely to issue almost 350,000 fewer mortgages for house purchase this year than they otherwise would have done. That includes more than 150,000 fewer mortgages to first time buyers, underlining how crucial it is for the whole economy that property industry professionals are able to get back to work as soon as it’s safe to do so.
Gammon notes that “it is become increasingly clear lenders are eager to do business.” Two weeks ago many banks retreated to the safety of more conservative lending criteria as they were overwhelmed by calls in the wake of two Bank of England rate cuts and the shut-down of many international call centres. But in recent days many of the major lenders have been coming back, raising the loan-to-value ratios they are willing to lend at, eager to gain market share.
To ensure the UK’s housing market is kick-started post lockdown; we have mapped out a five-point plan to bolster activity and spur economic growth.
Stamp duty holiday
Despite the fact the government will forgo a significant amount of stamp duty revenue in 2020, it seems clear there will need to be a stamp duty holiday to actually get the market moving once the lockdown is lifted, but this move alone will not be enough – there will need to be moves across a wider number of areas including an extension to Help to Buy to support first time buyers and support activity across all price bands.
Extend Help to Buy
Since its introduction, Help to Buy has been of critical support to the housebuilding sector, giving developers the confidence to progress projects in what has been, at times, a slower moving market. As such, any moves to extend the scheme will be welcomed, particularly given the anticipated drop in roverall transaction volumes over the next few months.
Review the conveyancing process
Over the longer term, a review of the conveyancing process will be needed. The process of conveyancing and Land Registry searches are just areas that could be greatly improved and sped up to drive efficiencies. Considerable work has been undertaken by industry bodies covering the legal and property sectors to improve the process, which needs to be supported and removing the reliance on pen and paper and instead focusing on the implementation of blockchain, something the Land Registry has already been trialling.
Introduce virtual planning meetings
However, the measures to help stimulate demand may well fall flat without supply-side support as well. Initiatives designed to keep the planning system moving have already been made, with the Coronavirus Bill effectively allowing councils to hold virtual planning meetings, but more can be done.
An extension of time to implement existing and pending planning permissions, given current barriers to developers starting on sites, would be a start, and one that has the backing of the HBF, the trade body for the home building industry. There is also a precedent with the government having granted similar temporary powers between 2009 and 2012 following the financial crisis.
Greater flexibility around planning obligations
Greater flexibility should also be encouraged with regards to the payment of planning obligations, such as section 106 and Community Infrastructure Levy (CIL) payments. Such outlays are generally paid up-front and – given expected limited cash-flow over the coming months - a move to allow practical staggering or staged payments would be welcome.
These critical government-led measures should help to drive liquidity in the housing market, support the wider economy and boost receipts for exchequer.