Why the outlook for the housing market remains promising after the end of Government incentives

Alongside the significant pent-up demand witnessed post-Coronavirus lockdowns, the introduction of Government incentives such as the stamp duty holiday and mortgage guarantee scheme have put 2021 on course to be the housing market’s busiest year since prior to the global financial crisis.

Article main image

After being announced by Chancellor Rishi Sunak in July 2020 with an end date of 31st March 2021, the stamp duty land tax (SDLT) holiday – which resulted in no stamp duty to pay for home-buyers purchasing a main residence costing less than £500,000 – ended on 30th June 2021 after a three month extension. 

In its place, acting as a taper, were temporarily reduced rates which resulted in only purchases above £250,000 being subject to SDLT. But this taper also came to an end on 30th September 2021, with pre-incentive SDLT rates now once again in place. 

Meanwhile, the mortgage guarantee scheme – whereby participating lenders have reintroduced 95% LTV mortgages after most were withdrawn amidst the Covid-19 crisis – was introduced in April 2021 and will run until December 2022. 

But some experts speculated that the end of these Government incentives, namely the SDLT cuts, would spell the end of the Coronavirus-induced housing boom. 

Whilst it’s true that the introduction of the original stamp duty holiday caused a surge in demand – on the day of the announcement, the number of enquiries to estate agents regarding properties for sale was up 93% on the same day in 2019 – now it has ended, much of this demand still remains. 

Zoopla’s latest UK House Price Index states there is “no sign of a cliff-edge in demand after the ending of the tapered stamp duty holiday”, with demand still 35% higher in mid-September than the five-year average and even continuing to accelerate further in some regions.  

Meanwhile, a report from The Resolution Foundation suggests the assertion that the SDLT cuts are the main cause of rising house prices is “somewhat wide off the mark”, and that changing preferences and “enforced savings” have played a primary role. 

Though the SDLT holiday was likely a driving force for many prospective buyers, with opportunities to save up to £15,000, it was the re-evaluation of what is needed from a home that brought rise to the “race for space”. This will see the number of those searching for new, more spacious houses stay above pre-pandemic levels even after the reintroduction of pre-incentive SDLT rates. 

This is especially true when considering the expected rise in permanent or hybrid home working, as large corporations such as HSBC are in talks with staff about making the switch to working from home on a more regular basis. 

Moreover, it’s likely increased demand will persist post-incentives in the North of England in particular, where there are a larger amount of homes under (or close to) the normal SDLT threshold of £125,000, with the average house price in the North East currently £213,091 compared to £441,246 in the South East. 

Whilst demand is strong and looks to remain so for the foreseeable future, the UK is still facing a chronic shortage of housing that has been all the more apparent amidst the surge of prospective buyers over the last 18 months. However, with this comes valuable, impact-driven opportunities for experienced investors wanting to capitalise on the market’s promising outlook.


Undersupplied demand provides opportunities for property investors

Zoopla have reported that whilst demand among buyers remains high, the number of homes for sale has dropped to the lowest levels since their records began. This gap between supply and demand is helping to boost house prices, as the average reached a new record high of £262,954 in August 2021. 

Furthermore, it’s predicted that the Government’s housbuilding target of 300,000 new homes per year by the mid-2020s will be missed by close to a decade. 

Although Q1 of 2021 saw the highest number of new-builds completed in over 20 years at 49,460 — evidencing the exceptional resilience of the housebuilding sector in extenuating circumstances such as those prompted by Coronavirus — delivery must continue to increase in order to keep pace with both existing and pandemic-led demand. 

And experienced investors can play a vital role in this delivery through asset-backed, often IFISA-eligible property bonds

The Government has time and time again reiterated the need for small and medium-sized housebuilders to work alongside their national counterparts to aid in tackling the ongoing housing crisis. To help them do so, the provision of alternative finance is crucial. 

By investing into property bonds, experienced investors are able to gain exposure to the ever-popular property sector and target inflation-beating potential returns of between 4% and 8%, all while supporting SME housebuilders to deliver much-needed housing.

Often offered on a fixed-term basis of between two and four years, property bonds can also allow for a regular stream of income, sometimes boasting opportunities to realise returns on a quarterly basis.  

The ability to access the residential housing sector in the UK in this way can be incredibly attractive to experienced investors, providing opportunities to benefit from accelerating, undersupplied demand in a hands-off and potentially lucrative manner. 


A positive outlook for experienced investors in particular

After a record-breaking 18 months for the UK’s housing market, the end of buyer-targeted Government incentives is not all bad news.

Demand continues to be strong, whilst supply – already low even pre-housing boom – is being further eroded and more must be done to support the delivery of new-build housing across the UK. 

The opportunities this presents for experienced investors through investment vehicles such as property bonds is particularly attractive – as the residential property sector has proven its resilience throughout the pandemic, and many mainstream investment options are looking increasingly unappealing at present