Surge in sales points to a bumper year for transactions as prices continue to rise

A surge in completed sales in March, together with the prospect of another peak in June, points to a bumper year for housing transactions in 2021 - but what of prices?

Record month for purchases

• Last week the HMRC reported that 180,690 house purchases were concluded across the UK in March. This was the fourth biggest monthly figure in the past 30 years and the highest since July of 2004.
• Notwithstanding the extension of the stamp duty land tax holiday (SDLT) in England and Northern Ireland, this level of activity reflects the number of deals that were in train to beat the original end date that was scheduled for 31 March.
• So we expect completed sales to be lower in April and, to a lesser degree, in May. However, we still expect them to be higher than in a 'normal' pre-pandemic market. This expectation reflects the levels of sales that continued to be agreed in January and February, which were fuelled more by people's reassessment of their housing needs than the availability of a tax incentive.

A second peak in June?

• This said, since the SDLT holiday was extended we have seen a corresponding pick up in agreed sales that has continued strongly into April. This has been particularly evident in the mid-to-upper part of the mainstream market where the holiday results in the biggest saving as a proportion of purchase price.
• That suggests we will see a second peak in completed sales at the end of June when the maximum saving in stamp duty across England and Northern Ireland will fall from ￡15,000 on purchases at or over ￡500,000 to just ￡2,500 on purchases at or above ￡250,000 (before being fully extinguished at the end of September).

A year of two halves?

• From the end of June, we expect to see some of the urgency to come out of the mainstream market. However, we expect transaction levels to take time to revert to more normal post-credit crunch levels, particularly given the experience of the Scottish market.
• Even though the equivalent, but somewhat less generous, Land and Buildings Transaction Tax (LBTT) holiday came to an end on 31 March, levels of agreed sales north of the border have been robust in April. That suggests whatever the capacity of pre-announced stamp duty measures to distort the pattern of transactions, it is not the be-all and end-all for buyers in the current environment.
• And so while the pandemic-related drivers of housing demand are expected to ease over the second half of the year, they are unlikely to disappear. And increasingly it looks like there will be a hangover of unmet demand, given the shortage of stock available to buy across large parts of the market.
• For the prime markets, Savills demand statistics suggest there remains strong demand in London and the regional markets. With our applicants per property at an all-time high, we anticipate that demand will remain strong for the rest of 2021.

The effect on house prices

• Today the Nationwide released its house price index for April, reporting that annual house price growth has risen to 7.1%.
• Meanwhile, last week the ONS reported that annual house price growth across the UK had risen to +8.6% by the end of February.
• While it brings five-year house price growth up to 22%, this is far lower than we saw in the early nineties or the run-up to the global financial crisis.
• Accordingly, while we expect price growth to weaken in the second half of the year, we do not expect to see a significant correction in house prices, particularly given the underlying interest rate environment and the prospect of falling levels of unemployment.

And in case you missed it

• With the built environment the source of 40% of the UK’s carbon emissions, it is clear that this issue increasingly represents the pre-eminent item on the agenda for all of us in the sector. In honour of Earth Day, last Thursday we launched our Spotlight on Property & Carbon report, which identifies the key components of the industry’s response to date.
• Last week, we also published our latest research on how the prime housing markets performed in the first quarter of 2021.