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Stick or twist: house prices are rising but is a Covid hangover on the cards?

Adam Williams
·11-min read
property snakes and ladders  - Ruby Martin
property snakes and ladders - Ruby Martin

The housing market seems to be thriving as buyers rush to take advantage of the Chancellor’s stamp duty tax giveaway. But with prices rocketing in some areas and stagnant in others, navigating the market is a complex task.

Telegraph Money answers some of the most common questions asked by home buyers.

Will my house price fall?

Trying to guess where house prices are heading is like trying to predict how the stock market will move on a given day. It is best avoided. Prices have risen sharply since the stamp duty tax holiday was announced and reached an all-time high of £224,123 in August, according to Nationwide.

A boom market during a recession has led many experts to predict that prices are going to fall after the tax break is withdrawn in March and the economic impact of coronavirus is fully felt.

People purchasing a home to live in should not worry about small short-term fluctuations as house prices generally rise over a longer period. However negative equity, which occurs when the amount owed on the mortgage is more than the value of the house, could be an issue if prices were to fall substantially.

I want to move. Should I sell now and rent, then buy later?

Selling your home and moving into rented accommodation can help you avoid complex property chains, where multiple purchases are reliant on other deals completing at the same time. Plus, if you believe property prices will fall, you could get more for your money by selling now and purchasing when prices are cheaper.

However, there are downsides to this strategy. Moving house is expensive and this would involve having to do so on two occasions. Also, you will have to pay for rented accommodation in the interim, which may cancel out any savings.

Charlie Wells, of buying agency Prime Purchase, says: “You should only wait to buy if you haven’t found the right house; if the right one comes along, and you can afford it, you should buy it.”

Should I buy before the stamp duty holiday ends?

The stamp duty tax giveaway was announced in July by Rishi Sunak, the Chancellor, with the intention of stimulating Britain’s flagging property market. It is estimated that 90 per cent of buyers will be able to purchase without paying the property tax. However, the tax break has caused a frenzy in the housing market with buyers rushing to take advantage.

Karen Noye of Quilter, a financial advice firm, says that demand is outstripping supply at present, particularly outside of major cities. “It’s a sellers’ market as there has been a lot of pent-up demand following lockdown and everyone’s change in circumstances.”

Where do house prices look like they will grow the most?

The coronavirus lockdown prompted many people to re-evaluate their lifestyle and property needs.

Those who are working from home, and who are expecting to do for the foreseeable future, are seeking bigger properties outside of city centres, increasing the demand for homes located in rural areas with a better quality of life, Noye says.

These areas have so far seen the biggest price rises.

Buying and selling

How do I find the right estate agent?

Choosing the right estate agent can be difficult, and many are shunning the high street for online alternatives.

Purplebricks is the best-known online agent, although other options include emoov, Strike and Yopa.

Fees are typically lower for online agents but they are charged up front, rather than when the property is sold, and users are required to conduct their own viewings. Physical estate agents are likely to have better knowledge of the local market.

How do I make my property stand out in today’s market?

Sellers can only make one first impression, therefore high-quality pictures which show off the property in the best light are crucial. Since the coronavirus lockdown began, many online listings also include a video tour of the property.

Online viewings have become commonplace. In most cases, a potential buyer will seek to visit the property at least a couple of times before they purchase, but some sales have been finalised without the buyer ever visiting the property.

Is it worth getting a buying agent?

These agents help prospective buyers find the right property and will negotiate on their behalf with the seller.

Buying agents have different charging structures, some charge a fixed fee while others are paid a percentage of the purchase price or of the discount achieved.

They are typically used by wealthier people who are purchasing in areas of high demand. Wells says that buying agents would also have access to properties which are not being widely advertised, as they will have prior relationships with estate agents.

How do you know how much to offer for a property?

Location, number of bedrooms, garden size and even proximity to good schools can all dramatically affect the price of a home.

A good starting point for buyers is to see how much similar properties have recently sold for in the local area. This information can be found easily online.

Jeremy Leaf, a north London estate agent, says that buyers must also assess the condition of the property and whether they are willing to pay for any renovation work.

“Make sure you have done your homework and have considered whether the property you are interested in is in short or more plentiful supply,” he says.

Rightmove rural hotspots
Rightmove rural hotspots

What are the key things to look out for when buying?

As well as taking into account the current state of the property, buyers should also assess whether its value could be affected in future by nearby developments. “Road schemes and planning policy going forward – anything which will affect the enjoyment of the property also needs to be taken into consideration,” Wells adds.

Buyers should also ensure that they are able to take out a mortgage. Houses which were built using non-standard construction methods, such as many ex-local authority buildings which were built using concrete, may be difficult to borrow against.

Ms Noye says that poor-quality extensions and conversions will also be viewed negatively by banks.

Those purchasing leasehold properties should also ensure that there is a lease of more than 70 years in place and check any ground rent agreements as some have charges which double every few years.

Ms Noye adds: “The same can be said for the level of service charges which can be quite high, especially in new-build apartment blocks.”

What are the most common traps for buyers?

There have been reports of a rise in “gazumping”, where another buyer swoops in with a higher offer at the last minute and purchases the property. Wells says there is little that prospective buyers can do to prevent this occurring, but they must be ready to complete their transactions as fast as possible.

“You must be prepared with proof of funds, a lawyer on board and up to speed with what you are up to,” he adds.

“Don’t tell your solicitor at the eleventh hour that you’ve had an offer accepted because they are likely to be too busy to take you on.”

Mortgages

How do I get the best mortgage rate?

A higher interest rate can cost hundreds of pounds a year in additional interest, so choosing the right mortgage is crucial.

Talking to a mortgage broker, who can compare and recommend deals across the market, is the best option. They will also be able to help those with complicated circumstances, such as the self-employed.

“There are some great deals out there,” Ms Noye says. “But the caveat is that you need to have a big deposit to access them.”

Should I get a fixed, variable or tracker mortgage?

Interest rates are at a historically low level which has prompted many buyers to take out fixed-rate loans. These mortgages offer the security of knowing what the monthly repayments will be over two, three or five years.

Variable or tracker rates can go up or down at any time and are more commonly used by people who expect to move house again in the near future, as they tend not to have any early repayment charges.

The Bank of England is considering negative interest rates to help steer the economy through the recession, but there are very few global examples of negative interest rates, where customers are effectively paid to borrow, being offered to consumers.

First-time buyers

Can a first-time buyer still get a mortgage?

First-time buyers have been the biggest casualties of the coronavirus recession. Most banks and building societies will no longer offer loans to customers with less than a 15 per cent deposit, leaving many young people without access to loans. Only a handful of providers, including Nationwide and Virgin Money, offer 10 per cent mortgages at present.

“This is due to lenders currently being worried about the current economic outlook which means they are choosing to limit their small deposit deals,” Ms Noye adds.

What is happening to the Help to Buy scheme?

Tens of thousands of people have used Help to Buy to get onto the ladder, as the Government scheme allows buyers to purchase with a 5 per cent deposit. However, the scheme will be restricted from April 2021 to first-time buyers purchasing homes with less-than-average house prices.

Is shared ownership a good deal?

Shared ownership is commonly used by young people as a shortcut to home ownership. The buyer purchases a share in a property and pays rent on the remainder, which is owned by a housing association. This means that homes can be purchased with a much smaller deposit than usual, sometimes less than £5,000.

However, these schemes have been criticised for being expensive and difficult to sell. Fees also apply if the owner wants to purchase a greater share of the property, known as “staircasing”, and not all banks will lend against these homes, Ms Noye says.

Should I wait for prices to fall before buying?

Some buyers have chosen to wait until the market is quieter before purchasing a property, deterred by rapidly rising house prices. However, Leaf says that while demand for smaller family homes near good schools has rocketed, prices of flats has fallen in many areas.

“The nature of demand has changed because of the pandemic – people want more outside space and to work from home, rather than being close to a station,” Leaf says. This market shift means flat buyers may be able to succeed with offers below the asking price.

Stamp duty holiday savings
Stamp duty holiday savings

Buy-to-let

I want to get into buy-to-let. Is now the right time?

Buy-to-let has been squeezed in recent years, as Government tax changes reduced profits. However, the stamp duty giveaway has caused a resurgence in activity. Unlike most residential buyers, property investors must still pay stamp duty on their purchases but charges will be lower than usual.

For example, a landlord purchasing a £250,000 property will currently pay £7,500 in stamp duty, £2,500 less than normal. However, some landlords are choosing to bide their time and purchase after April, hoping that prices will fall once the stamp duty tax break is withdrawn.

Is it a better idea to get into holiday lets?

The boom in so-called staycations has generated renewed interest in holiday let properties in coastal towns and rural areas. The rules for holiday lets differ from traditional buy-to-let and you cannot let for longer periods and the property must be available to rent for at least 210 days a year.

While holiday lets can generate significantly more than long-term rentals during the summer high season, remember that there may be weeks and even months with few bookings during the winter.

How do I make my small portfolio more tax efficient?

Landlords are now limited in the amount of expenditure they can offset against tax if they own properties in their own name. This has prompted many to consider transferring the ownership of these homes into company structures, which enjoy a more favourable tax regime.

Normally this is an expensive change, as the property is effectively being bought by the company from the individual, stamp duty and capital gains tax would apply. However, with stamp duty being reduced until March, many investors are using this opportunity to move their properties into a tax-efficient company structure. A tax adviser should be consulted before making this change.

Where should I invest?

For those getting into buy-to-let for the first time, or looking to grow their existing property portfolio, choosing where to purchase is a crucial decision, perhaps now more than ever before . As city dwellers start looking to smaller towns and villages in the countryside, these have proven attractive places for investors to buy.

However, prices are rising fastest in these areas. As prices for city centre flats are stagnant or falling, they could be worth considering for landlords investing for the longer term.

Got a question about navigating the property market? Tell us in the comments section below