Is now a good a good time for first-time buyers to get on the property ladder?

With house prices falling and a possible stamp duty holiday on the horizon, here's what you need to know

Helen Coffey
Tuesday 07 July 2020 12:18
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Coronavirus: What have we got to feel optimistic about?

In May the government gave the green light for estate agents and the property market to reopen; permitting people in England to buy, sell or rent a property, and even attend a house viewing.

But following two months of shutdown and the economic impact of Covid-19 (the UK economy contracted faster than after the 2008 financial crash) the housing market is not in good shape.

On 7 July it was confirmed by Halifax that house prices have fallen for four months in a row - the first time this has happened since 2010.

Property values in June were 0.1 per cent lower than in May, following a 0.2 per cent fall in May, 0.6 per cent in April and 0.3 per cent in March.

As well as lower house prices, Chancellor Rishi Sunak is expected to announce a stamp duty holiday on Wednesday, as part of a package to reinvigorate the economy - this could be a real financial motivation for first-time buyers.

Although many people who have been furloughed or made redundant from their job are unlikely to be thinking about making a big investment now - for those who can, is this a good time to buy a house? Here’s everything you need to know.

Have house prices fallen?

The Halifax index confirmed that prices have fallen month on month, for four consecutive months in 2020. This is the first time this has happened in over a decade.

However despite four months of prices edging downwards, house prices were higher in June when compared with a year earlier, Halifax said.

Across the UK, property values in June were 2.5 per cent higher than in the same month a year earlier. The average house price in June was £237,616.

Russell Galley, managing director, Halifax, said: "We do expect greater downward pressure on prices in the medium term, the extent of which will depend on the success of government support measures and the speed at which the economy can recover."

Anthony Codling, housing market analyst and CEO of online property platform Twindig, says it is tricky to say whether house prices will continue to fall. "With transactions drying up there is little data to go on," he says.

House prices were going up prior to lockdown; when the market closed, house prices did not change as there were no sales. The Office for National Statistics has even temporarily suspended its UK house price index until further notice due to a lack of available data.

Will they fall in future?

Possibly, but not necessarily – it’s a complex picture. There has been an unusually wide range of speculation from the industry on the topic: the Centre for Economics and Business Research predicted in May that 2020 prices will be down by 13 per cent “as a lack of transactions, high uncertainty and falling incomes take their toll”, while a third of valuation surveyors are forecasting price drops of just 4 per cent or less.

Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (RICS), said: "On the one hand, prices have fallen for the fourth consecutive month but new mortgage inquiries are surging as buyers and sellers emerge from lockdown.

"The direction of travel in coming months will depend on the degree of support offered by the Government and how quickly the economy can recover when furlough in particular is withdrawn."

In May Knight Frank predicted a fall of 7 per cent; Savills is looking at a short-term decrease of 5-10 per cent, although it believes the market will have bounced back completely by 2022.

Mr Codling adds that, although he predicts house prices are likely to fall as we approach a recession, there are other factors at play too, such as supply and demand.

House moves can be divided into those that are necessary – for example, a family is having another baby, a couple is getting divorced, an elderly person needs to move into a care home – and those that are discretionary – ie, you don’t need to move but you would like to, for instance to have more outdoor space. Twindig estimates that half of home moves are the latter; these types of move tend to drop off a cliff in times of uncertainty, resulting in fewer houses on the market and a potential stabilising of prices.

“During the credit crunch, housing transactions fell by 50 per cent, and we believe that the housing market during the ‘Covid-crunch’ will follow a similar pattern,” says Mr Codling.

“With more than 25 per cent of the country’s workforce on furlough and a recession just around the corner, the fear of unemployment is rising and rising fast. The simple fact is that people do not choose to move if they are worried about losing their job.”

MovingHomeAdvice.com’s Russell Quirk, meanwhile, does not predict too much of an impact on prices overall: “Property prices will not, in my opinion, now drop as a consequence of Covid uncertainty or anxiety. Demand is too strong and market fundamentals that drive demand remain robust.”

Is now a good time to buy for first-timers?

In some circumstances, yes. It is of course worth considering making use of the reported stamp duty holiday, to be announced on Wednesday 8 July.

According to reports, the current stamp duty land tax could be altered so that the threshold for stamp duty is set between £300,000 and £500,000.

This would allow members of the public looking at homes on the lower end of the housing market to avoid having to pay stamp duty for a significant period of time.

If a first-time buyer purchases a property for £500,000, the new system could allow them to save £10,000 on stamp duty, as per the current rates.

In addition housebuilders will be looking to get rid of the sales they have not made in the last couple of months, says Mr Codling.

“During the credit crunch, the housebuilders doubled their market share in the housing market,” says Mr Codling. “Housebuilders are also much more pragmatic on price than homeowners because they have to sell and are not as emotionally attached to the homes they are selling.

“Many housebuilders also have accounting periods ending on 30 June 2020 and will be looking to meet sales targets – this provides the first-time buyer a great opportunity to negotiate an attractive lower price.”

When buying a new build, first-time buyers can also benefit from the government’s Help to Buy scheme, which removes the need for a large deposit, plus they benefit from brand new fixtures and a 10-year warranty.

Mr Quirk agrees that there are opportunities for buyers out there: “For those sellers that are wobbling at this time, especially buy-to-let landlords that have been consistently kicked by government policy in recent years, there might be a deal to be had if first time buyers act quickly.”

What are the downsides?

“Mortgage lenders get nervous when there are growing signals of house price falls and, while we are in a Covid crunch not a credit crunch, we expect to see a reduction in the availability of high loan to value mortgages,” says Mr Codling.

The result? First-time buyers will need a bigger deposit – for those without access to the Bank of Mum and Dad, it may prove challenging to build up enough cash to gain a toehold on the property ladder.

But those who can afford to purchase now could reap the rewards. He adds: “Ironically, if you do have a deposit, you may well find that the monthly mortgage payments are lower than the rent you are currently paying.”

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